Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
HSB GROUP, INC.
(Exact name of registrant as specified in its charter)
Connecticut
(State or other jurisdiction of incorporation or organization)
6133
(Primary Standard Industrial Classification Code Number)
x
(I.R.S. Employer Identification Number)
One State Street, P.O. Box 5024, Hartford, CT 06102-5024
(860) 722-1866
(Address, including ZIP Code, and
telephone number, including
area code, of registrant's
principal executive
offices)
R. Kevin Price, Corporate Secretary
HSB Group, Inc.
One State Street, P.O. Box 5024, Hartford, CT 06102-5024
(860) 722-1866
(Name, address, including ZIP Code, and telephone number, including area
code, of Agent for Service)
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement has become
effective and all other conditions to the Agreement and Plan of Share Exchange,
described in the enclosed Prospectus and Proxy Statement pursuant to which the
common stock and preferred stock of The Hartford Steam Boiler Inspection and
Insurance Company and HSB Group, Inc. will be exchanged, have been satisfied or
waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
Title of Proposed Proposed
each class of maximum maximum Amount
securities Amount offering aggregate of
to be to be price offering Registration
registered registered per unit price fee(1)
- ---------- ---------- -------- --------- ------------
Common Stock,
no par value 20,041,707 $45.625 $914,402,881 $277,092
(1) Estimated pursuant to Rule 457(f)(1) of the Securities Act of 1933,
based upon the average of the high and low sales price per share of The
Hartford Steam Boiler Inspection and Insurance Company common stock on
February 10, 1997 as reported by the New York Stock Exchange Composite
Transactions Reporting System.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY
February 27, 1997
Dear Stockholder:
You are cordially invited to attend the 1997 Annual Meeting of
Stockholders on Thursday, April 24, 1997 at 2:00 P.M. at our Home Office at One
State Street, Hartford, Connecticut.
The notice of the Annual Meeting and Prospectus and Proxy Statement are
contained on the following pages. In addition to the proposals discussed in the
Prospectus and Proxy Statement, we will also be discussing the Company's results
for 1996 and outlook for 1997 and beyond.
At this meeting, one of the important proposals stockholders will be
asked to consider and vote on involves the formation of a holding company
structure as described in more detail in the attached Prospectus and Proxy
Statement. For the reasons stated in the accompanying materials, the Board of
Directors believes that the formation of such a holding company structure is in
the best interests of the Company and its stockholders and recommends a vote
"FOR" the formation of the holding company structure.
Your proxy is very important in making up the total number of shares
necessary to hold the meeting, even though you may own only a few shares.
Whether or not you plan to attend the meeting, please fill out, sign and return
your proxy card in the envelope provided as soon as possible. Your cooperation
is appreciated.
Sincerely,
Gordon W. Kreh
President and
Chief Executive Officer
The Hartford Steam Boiler
Inspection and Insurance Company
One State Street
P.O. Box 5024
Hartford, Connecticut 06102-5024
<PAGE>
NOTICE OF ANNUAL MEETING
February 27, 1997
TO THE STOCKHOLDERS:
Notice is hereby given that the Annual Meeting of Stockholders of The
Hartford Steam Boiler Inspection and Insurance Company will be held on Thursday,
April 24, 1997, at 2:00 o'clock P.M., at the office of the Company, One State
Street, Hartford, Connecticut, for the following purposes:
1. To elect three directors for three-year terms;
2. To consider and act upon a proposal to approve an Agreement and
Plan of Share Exchange pursuant to which shares of common stock
of a newly formed holding company, HSB Group, Inc. ("HSB Group")
will be exchanged on a one-for-one basis for all of the
outstanding common stock of the Company, shares of preferred
stock of HSB Group will be exchanged for all of the outstanding
shares of Series B Convertible Preferred Stock of the Company,
and certain other transactions as described herein will be
effectuated;
3. To consider and act upon a proposal to amend and restate the 1995
Stock Option Plan to increase the number of shares available for
the granting of awards;
4. To appoint independent public accountants for the ensuing year;
and
5. To transact any other business proper to come before the meeting.
A Prospectus and Proxy Statement to assist you in the consideration of
the foregoing matters is attached.
The Board of Directors has fixed February 13, 1997, at the close of
business, as the record date and time for the determination of the stockholders
entitled to notice of and to vote at said Annual Meeting and any adjournment
thereof.
It is hoped that you will be able to attend this meeting. If you cannot,
you are urgently requested to sign and return the enclosed proxy card in the
envelope provided.
By order of the Board of Directors.
R. K. PRICE
Corporate Secretary
<PAGE>
<PAGE>
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY
HSB GROUP, INC.
------------------------------
PROSPECTUS AND PROXY STATEMENT
This Prospectus and Proxy Statement is being furnished in connection
with the solicitation of proxies by the Board of Directors of The Hartford Steam
Boiler Inspection and Insurance Company ("Hartford Steam Boiler" or the
"Company") for the 1997 Annual Meeting of Stockholders of the Company ("Annual
Meeting") to be held on April 24, 1997 at 2:00 P.M. at One State Street,
Hartford, Connecticut. This Prospectus and Proxy Statement, together with the
Notice of Annual Meeting, proxy card and Annual Report of the Company for the
year ended December 31, 1996 are first being mailed to stockholders on or about
February 27, 1997.
At the Annual Meeting stockholders will vote on the following matters:
1) the election of three directors; 2) the approval of an Agreement and Plan of
Share Exchange (the "Share Exchange") pursuant to which shares of common stock
of a newly formed holding company, HSB Group, Inc. ("HSB Group" or "Holding
Company"), will be exchanged on a one-for-one basis for all of the outstanding
shares of common stock of the Company, shares of preferred stock of HSB Group
will be exchanged for all of the outstanding Series B Convertible Preferred
Shares of the Company, and certain other transactions as described herein will
be effectuated (the "Restructuring"); 3) an amendment to the 1995 Stock Option
Plan to increase the number of shares available for the granting of awards under
the plan; 4) the appointment of independent public accountants; and 5) the
transaction of any other business which may properly come before the meeting.
This document also serves as the Prospectus of the Holding Company with
respect to the issuance of up to 20,041,707 shares of common stock of the
Holding Company in connection with the Restructuring.
---------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------------------
The date of this Prospectus and Proxy Statement is February 27, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information reporting requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549-1004 and
at the following Regional Offices of the Commission: Chicago Regional Office,
CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60621-2511; and New York Regional Office, 7 World Trade Center, 13th Floor, New
York, New York 10048. The Commission also maintains a Worldwide Web site at
http://www.sec.gov that contains reports, proxy statements and other information
that the Company files with the Commission electronically. Copies of such
materials also may be inspected at the New York Stock Exchange, 20 Broad Street,
New York, NY 10005.
HSB Group will become subject to the information reporting requirements
of the Exchange Act after the Restructuring and thus has not made any filings
under the act as yet. If the Restructuring is consummated, the shares of common
stock of HSB Group will be listed on the New York Stock Exchange under the
trading symbol HSB.
HSB Group has filed with the Commission a registration Statement on
Form S-4 (together with any annexes, exhibits and amendments thereto, the
"Registration Statement") under the Securities Act of 1933, as amended, (the
"Securities Act") covering up to 20,041,707 shares of HSB Group common stock.
HSB Group has filed requests for exemptions from regulatory approval of
the Restructuring on behalf of the Company and its subsidiaries with the
Insurance Commissioners of the State of Connecticut and the State of Texas, the
Michigan Insurance Bureau and the Secretary of State of the Department of Trade
and Industry in the United Kingdom.
No person has been authorized to give any information or to make any
representation not contained in or incorporated by reference in this Prospectus
and Proxy Statement, and if given or made, such information or representation
not contained herein must not be relied upon as having been authorized. This
Prospectus and Proxy Statement does not constitute an offer to sell, or the
solicitation of an offer to purchase, any of the securities offered by this
Prospectus and Proxy Statement, or the solicitation of a proxy, in any
jurisdiction to or from any person to or from whom it is unlawful to make such
offer or solicitation of an offer, or proxy solicitation in such jurisdiction.
Neither the delivery of this Prospectus and Proxy Statement nor the issuance or
sale of any securities hereunder shall, under any circumstances, create any
implication that there has been no change in the information set forth herein
since the date hereof or incorporated by reference herein since the date hereof.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the SEC (File No.
0-13300) are incorporated in this Prospectus and Proxy Statement by reference
and made a part hereof:
(i) The Annual Report on Form 10-K for the year ended December 31, 1995;
(ii) The Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996;
June 30, 1996; and September 30, 1996; and (iii) The Current Reports on Form 8-K
dated January 30, 1996, May 1, 1996 and July 22, 1996.
All documents subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, after the date
of this Prospectus and Proxy Statement and prior to the termination of the offer
made by this Prospectus and Proxy Statement, shall be deemed to be incorporated
in this Prospectus and Proxy Statement by reference and to be a part hereof from
the respective dates of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference in this
Prospectus and Proxy Statement shall be deemed to be modified or superseded for
purposes of this Prospectus and Proxy Statement to the extent that a statement
contained herein, or in any subsequently filed document that also is
incorporated or deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded to constitute a part of this
Prospectus and Proxy Statement.
As described above, this Prospectus and Proxy Statement incorporates documents
by reference which are not presented herein or delivered herewith. These
documents are available without charge upon request delivered to: R. Kevin
Price, Corporate Secretary, The Hartford Steam Boiler Inspection and Insurance
Company, One State Street, P.O. Box 5024, Hartford, Connecticut, 06102-5024. In
order to ensure timely delivery, any request should be made by April 17, 1997.
<PAGE>
TABLE OF CONTENTS
Summary of Restructuring Proposal
Description of the Restructuring
Purposes of Restructuring
Regulation after the Restructuring
Management of HSB Group
Exchange Listing and Exchange of Stock Certificates
Tax Consequences of Restructuring
Stockholder Vote Required for Approval
Dissenters' Appraisal Rights
Regulatory Approvals
Conditions to the Restructuring
General
Proposal 1--Election of Directors
Nominees for Election to the Board of Directors
Members of the Board of Directors Continuing in Office
Meetings and Remuneration of the Directors
Security Ownership of Certain Beneficial Owners and
Management
Human Resources Committee Report on Executive Compensation
Summary Compensation Table
Stock Option and Long-Term Incentive Plan Tables
Retirement Plans
Employment Arrangements
Compensation Committee Interlocks and Insider Participation
Transactions with Management
Performance Graphs
Proposal 2--Proposal to Approve Restructuring
Recommendation of Directors
Purposes of Restructuring
Description of the Restructuring
Required Regulatory Approvals and other Regulatory
Matters
Insurance Ratings
Management after the Restructuring
Conditions to the Restructuring
Dividend Policy
HSB Group Capital Stock and Rights Plan
Comparative Rights of Stockholders
Effective Time of Restructuring
Amendment, Waiver or Termination
Certain Federal Income Tax Consequences
Stock Plans and Other Employee Benefit Plans
Automatic Dividend Reinvestment Plan (DRP) and Payroll
Investment Plan (PIP)
Trading of HSB Group Common Stock
Transfer and Dividend Disbursement Agent
Dissenters' Appraisal Rights
Financial Statements
Dividends and Market Price Ranges
Legal Opinions
Experts
Stockholder Vote Required for Approval
Proposal 3--Proposal to Amend the 1995 Stock Option Plan
Material Features of the Plan
General
Option Grants
Restricted Stock Awards
Federal Income Tax Consequences
Stockholder Vote Required for Approval
Proposal 4--Appointment of Independent Public Accountants
Deadline for Stockholder Proposals
Other Business to Come Before the Meeting
Additional Information Available
<PAGE>
SUMMARY OF RESTRUCTURING PROPOSAL
The following is a summary of certain information regarding the proposed
Restructuring contained or incorporated by reference in this Prospectus and
Proxy Statement and is qualified in its entirety by the more detailed
information contained or incorporated by reference herein. For more detailed
information concerning the Restructuring see "Proposal 2 - Proposal to Approve
Restructuring" on page x. Information concerning other matters to be acted upon
at the Annual Meeting is contained elsewhere herein.
The Board of Directors unanimously recommends that you vote "FOR" the
Restructuring.
Description of the Restructuring
HSB Group was incorporated to become the holding company of, and the
direct owner of, the Company and certain of the Company's subsidiaries. Certain
other subsidiaries of the Company will continue to be directly held by the
Company. The organizational charts on page x show the structure of the Company
before and after the proposed Restructuring. The Restructuring will be
effectuated by a share exchange whereby each share of common stock, no par
value, of the Company ("Company Common Stock"), outstanding immediately prior to
the effective time of the exchange will be exchanged for one share of common
stock, no par value, of HSB Group ("HSB Group Common Stock"), and each share of
Series B Convertible Preferred Stock of the Company ("Company Preferred Stock")
will be exchanged for one share of Series B Convertible Preferred Stock of HSB
Group, having the same rights and preferences ("HSB Group Preferred Stock"). As
a result, following the exchange, all outstanding shares of Company Common Stock
and Company Preferred Stock will be held by the Holding Company, and all
outstanding shares of the Holding Company will be owned by the holders of the
Company Common Stock and Company Preferred Stock, respectively, that were
outstanding immediately prior to the effective time of the exchange.
Purposes of Restructuring
The Restructuring will provide greater operating and financial
flexibility in connection with certain investments, business operations and
financing activities than is available under the current structure. Holding
company structures are frequently used when an organization conducts regulated
and unregulated lines of businesses and are commonly found in the insurance
industry.
Regulation after the Restructuring
After the Restructuring, the Company will continue to be subject to
regulation by the Insurance Commissioner of the State of Connecticut and other
regulatory authorities in jurisdictions within which the Company continues to
transact business. Such regulations include provisions that will impose
restrictions on certain transactions among the Company, HSB Group and its
affiliates.
Management of HSB Group
The directors of HSB Group, upon consummation of the Restructuring,
will be the same persons who presently serve as directors of the Company,
including the nominees up for re-election at the Annual Meeting assuming such
directors are re-elected by stockholders. The executive officers of HSB Group
will consist of the current executive officers of the Company.
Exchange Listing and Exchange of Stock Certificates
It is anticipated that the HSB Group Common Stock to be received by the
Company's common stockholders in the Restructuring will be listed on the New
York Stock Exchange under the trading symbol HSB effective as of the
consummation of the Restructuring. This will enable stockholders of the Company
to trade the HSB Group Common Stock which they receive in the Restructuring
without interruption.
It will not be necessary for stockholders to exchange their Company
Common Stock certificates for HSB Group Common Stock certificates. Certificates
representing Company Common Stock will automatically represent the corresponding
shares of HSB Group Common Stock upon consummation of the Restructuring.
Tax Consequences of Restructuring
It is a condition to the consummation of the Restructuring that the
Company receives an opinion from Skadden, Arps, Slate, Meagher & Flom LLP, tax
counsel for the Company, to the effect that, based upon certain representations,
among other things, the holders of the Company Common Stock and Company
Preferred Stock will recognize no gain or loss upon the exchange of their shares
of Company Common Stock and Company Preferred Stock solely for shares of HSB
Group Common Stock and Preferred Stock, respectively.
Stockholder Vote Required for Approval
Approval of the proposed Restructuring will require the approval of
two-thirds of all outstanding shares of Company Common Stock and Company
Preferred Stock voting together as a single class.
Dissenters' Appraisal Rights
Holders of Company Common Stock and Company Preferred Stock will have
the right to have their shares appraised and be paid the fair value of their
shares. Stockholders who wish to exercise their dissenters' rights must follow
carefully the procedures described on page x herein under the caption
"Dissenters' Appraisal Rights". Failure to do so could result in the loss of
such rights.
Regulatory Approvals
Applications to obtain exemptions relating to approval of the
Restructuring are pending before the Insurance Commissioners of the State of
Connecticut and the State of Texas, the Michigan Insurance Bureau and the
Secretary of State of the Department of Trade and Industry in the United
Kingdom. Receipt of such exemptions is a condition to the consummation of the
Restructuring.
Conditions to the Restructuring
The obligation of the Company and HSB Group to consummate the
Restructuring is subject to various conditions, including, but not limited to:
(i) obtaining the required approval of the Company's stockholders;
(ii) the approval or exemption of the insurance regulatory authorities in
Connecticut, Texas, Michigan and the United Kingdom; (iii) the effectiveness of
the Registration Statement; (iv) authorization for listing HSB Group Common
Stock on the New York Stock Exchange; (v) receipt of an opinion from Skadden,
Arps, Slate, Meagher & Flom LLP, tax counsel for the Company, that the Share
Exchange constitutes a tax-free transaction under the Internal Revenue Code of
1986, as amended, to the stockholders of the Company upon their exchange of
Company stock solely for HSB Group stock; (vi) receipt of an opinion as to the
legality of the HSB Group Common Stock and HSB Group Preferred Stock issuable in
connection with the Share Exchange; and (vii) the absence of any injunction
prohibiting or restricting in any manner the Share Exchange or the operation of
HSB Group, the Company or any of their subsidiaries after consummation of such
Share Exchange.
<PAGE>
GENERAL
The enclosed proxy is solicited by the Board of Directors of The
Hartford Steam Boiler Inspection and Insurance Company for use at the Annual
Meeting of Stockholders to be held April 24, 1997, and at any and all
adjournments thereof. The Company is a Connecticut corporation and its principal
office is located at One State Street, P.O. Box 5024, Hartford, Connecticut
06102-5024, (860) 722-1866.
You are urged to read this Prospectus and Proxy Statement and to fill
in, date, sign and return the enclosed form of proxy. The giving of a proxy does
not affect your right to vote should you attend the meeting and the proxy may be
revoked at any time before it is voted, except as outlined in the section
captioned "Dissenters' Appraisal Rights" located on page x. Properly executed
proxies not revoked will be voted as specified.
Arrangements will be made with brokers, nominees and fiduciaries to
distribute proxy material to their principals, and their postage and clerical
expenses in so doing will be paid by the Company. The entire cost of soliciting
proxies on behalf of management will be borne by the Company. Directors,
officers and regular employees of the Company may solicit proxies personally if
proxies are not received promptly. The Company has retained Corporate Investor
Communications, Inc. ("CIC") to aid in the solicitation of proxies. CIC's fee is
not expected to exceed $4,500 in addition to out-of-pocket expenditures.
Only holders of Company Common Stock and Company Preferred Stock of
record at the close of business on February 13, 1997 are entitled to notice of,
and to vote at, the meeting. Each stockholder of record on said date is being
mailed the Annual Report of the Company for the fiscal year ended December 31,
1996 with the Notice, Prospectus and Proxy Statement and Proxy card on or about
February 27, 1997. On February 13, 1997, there were 20,041,707 outstanding
shares of Company Common Stock, each entitled to one vote, and 2,000 shares of
Company Preferred Stock, each entitled to 199 votes.
Abstentions and broker non-votes are included in the total number of
shares represented for matters to be voted upon at the meeting for quorum
purposes. Abstentions and broker non-votes will not be counted as either FOR or
AGAINST a nominee or matter and will have no effect upon the election of
directors, the approval of the Stock Option Plan amendment or the ratification
of auditors. However, abstentions and broker non-votes will have the effect of a
vote AGAINST Proposal 2, the proposal to approve the Restructuring.
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Charter provides for a Board of not less than nine nor
more than fourteen directors, the exact number of directorships to be determined
from time to time by resolution adopted by the affirmative vote of a majority of
the Board. The directors are divided into three classes consisting, as nearly as
possible, of one third of the total number of directors constituting the entire
Board. Each class is elected for a three-year term at successive annual
meetings. The Board of Directors has fixed the number of directorships at
eleven.
Three directors are to be elected for terms of three years and until
their successors are elected and qualified. Unless otherwise instructed, the
shares represented by the enclosed proxy will be voted for William B. Ellis, E.
James Ferland and Wilson Wilde. In the event any nominee is unable to serve as a
director on the date of the Annual Meeting, the proxies may be voted for a
substitute nominee recommended by the Board of Directors. A plurality of the
votes cast by the shares entitled to vote is required for the election of each
director.
The nominees for election to the Board of Directors were elected to
their present term at the 1994 Annual Meeting.
Stated below are the names and ages of the nominees and directors
continuing in office, the principal occupation of each during at least the last
five years, the date on which each individual was first elected as a director of
the Company, and other directorships and business and civic affiliations of such
persons. The information set forth on the following pages with respect to each
nominee's and director's principal occupation, other directorships and
affiliations and beneficial ownership of Company Common Stock has been furnished
by the nominee or director. No information is being provided for Mr. John A.
Powers, who will retire from the Board of Directors effective with the 1997
Annual Meeting.
<PAGE>
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
For Three-Year Term Expiring in 2000
William B. Ellis
Mr. Ellis, 56, is Senior Fellow at the Yale University School of
Forestry and Environmental Studies, a position he has held since
----- September 1995. In August 1995, he retired from his position as
Chairman of the Board of Northeast Utilities and its principal
subsidiaries, as well as from Connecticut Yankee Atomic Power
PHOTO Company, after serving as Chief Executive Officer of those
companies from 1983 to 1993. Mr. Ellis is a director of Advest
Group, Inc., Catalytica Combustion Systems, Inc., Massachusetts
----- Mutual Life Insurance Company, Connecticut Capitol Region Growth
Council, Inc. and The Greater Hartford Chamber of Commerce. He is
also a member of the Board of The National Museum of Natural
History of the Smithsonian Institution and a member of the
Conservation Science Advisory Board of The Nature Conservancy.
Mr. Ellis has served as a director of the Company since April
1991.
E. James Ferland
Mr. Ferland, 54, is Chairman, President and Chief Executive
----- Officer of Public Service Enterprise Group Incorporated and
Chairman and Chief Executive Officer of its principal subsidiary,
PHOTO Public Service Electric and Gas Company, a position he has held
since 1986. Mr. Ferland is a director of Foster Wheeler
----- Corporation and the Nuclear Energy Institute.
Mr. Ferland has served as a director of the Company since
November 1986.
Wilson Wilde
Mr. Wilde, 69, retired in April of 1994 from his position as
----- Chairman and Chief Executive Officer of the Company, which he had
held since September of 1993. He joined the Company in 1953 and
PHOTO was elected President in 1971. He is a director of PXRE
Corporation and Front Royal, Inc. and is Chairman of the Board of
----- Trustees of The Loomis Chaffee School.
Mr. Wilde has served as a director of the Company since March
1967.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
Term Expiring in 1998
Richard H. Booth
Mr. Booth, 49, is Executive Vice President of Phoenix Home Life
Mutual Insurance Company, a position he has held since October of
1994. Prior to joining Phoenix, Mr. Booth served as President,
Chief Operating Officer and a director of The Travelers
----- Corporation from 1991 to 1994. Mr. Booth is a director of Phoenix
Duff & Phelps and Aberdeen Trust PLC. He is a member of the Board
PHOTO of Trustees and Treasurer of the Wadsworth Atheneum. He is also a
member of the Board of Trustees of the Old State House, the Board
----- of Regents of the University of Hartford, a member of the Babson
College Corporation, a member of the Corporate Associates
Advisory Board of The Nature Conservancy, Connecticut Chapter,
and a board member of the World Affairs Council.
Mr. Booth has served as a director of the Company since July
1996.
Colin G. Campbell
Mr. Campbell, 61, is President of Rockefeller Brothers Fund, a
position he has held since 1988. Mr. Campbell is a director of
----- Pitney Bowes, SYSCO Corporation, Rockefeller Financial Services
and HSB Engineering Insurance Limited, a subsidiary of the
PHOTO Company. He is Chairman of the University of Cape Town Fund and
Winrock International Institute for Agricultural Development. He
----- is a trustee of the Colonial Williamsburg Foundation, Institute
for the Future and Charles E. Culpeper Foundation, and a director
of Public Broadcasting Services.
Mr. Campbell has served as a director of the Company since
September 1983.
John M. Washburn, Jr.
Mr. Washburn, 69, is Chairman of the Board of Directors of The
Merrow Machine Company, a manufacturer of industrial sewing
----- machines. He joined Merrow in 1953, and served in a variety of
positions before being named President in 1978, a position he
PHOTO held until his retirement in April 1995. Mr. Washburn is a
director of Walton Company and a trustee of the YMCA of Greater
----- Hartford.
Mr. Washburn has served as a director of the Company since March
1973.
Term Expiring In 1999
Joel B. Alvord
Mr. Alvord, 58, is currently Chairman of the Executive Committee
and a Director of Fleet Financial Group, having served as its
Chairman from November 1995 until December 1996. He became
----- Chairman and Chief Executive Officer of Shawmut National
Corporation in 1988 and was elected to Chairman of Fleet
PHOTO Financial Group in November 1995 following the merger of Shawmut
National Corporation with Fleet Financial Group. Mr. Alvord is a
----- director of CUNO Incorporated and the Harvard Eating Disorders
Center, a trustee of The Wang Center for the Performing Arts,
Boston, and an Overseer of the Museum of Fine Arts, Boston and
The Boston Symphony Orchestra.
Mr. Alvord has served as a director of the Company since December
1971.
Richard G. Dooley
Mr. Dooley, 67, is a consultant to Massachusetts Mutual Life
Insurance Company. Mr. Dooley joined Massachusetts Mutual in 1955
----- and served in a variety of positions before being named Executive
Vice President and Chief Investment Officer in 1978, a position
PHOTO he held until his retirement in 1993. Mr. Dooley is a director of
Advest Group, Inc., Jefferies Group, Inc., Kimco Realty Corp.,
----- Investment Technology Group, Inc. and certain Massachusetts
Mutual-sponsored investment companies. He is a trustee of Saint
Anselm College.
Mr. Dooley has served as a director of the Company since May
1984.
Gordon W. Kreh
Mr. Kreh, 49, is President, Chief Executive Officer and a
director of the Company. He joined The Boiler Inspection and
Insurance Company of Canada, a subsidiary of the Company, in
1971, before moving to the Company's home office in 1975. He
became an officer of the Company in 1980 and was elected Vice
----- President in 1984. In 1988, he was named Senior Vice President of
Engineering Insurance Group, an affiliate of the Company, and
PHOTO became its President in 1989. He was elected Senior Vice
President of the Company in 1992, President in 1993 and assumed
----- his present position in April of 1994. Mr. Kreh is chair of the
executive committee of Industrial Risk Insurers, a board member
of the American Insurance Association, and a director of The
Boiler Inspection and Insurance Company of Canada and HSB
Engineering Insurance Limited, subsidiaries of the Company. He is
also president of the board of directors of the Greater Hartford
Arts Council and a trustee of the Wadsworth Atheneum.
Mr. Kreh has served as a director of the Company since September
1993.
Lois D. Rice
Mrs. Rice, 63, is a Guest Scholar, Program in Economic Studies,
at the Brookings Institution, a position she has held since
----- October 1991. From 1981 until 1991, she served as Senior Vice
President, Government Affairs and a director of Control Data
PHOTO Corporation. Mrs. Rice is a director of McGraw-Hill Companies,
International Multifoods, Fleet Financial Group and UNUM Corp.
----- She is a trustee of The Urban Institute, the Center for Naval
Analysis and the Public Agenda Foundation. Mrs. Rice also serves
as a member of the President's Foreign Intelligence Advisory
Board.
Mrs. Rice has served as a director of the Company since April
1990.
Meetings and Remuneration of the Directors
During 1996, the Board of Directors held ten meetings and twenty-two
committee meetings. Each director attended at least 75% of the meetings of the
Board and committees on which he or she served combined.
The annual retainer in effect during 1996 for each director who was
neither a present or retired employee of the Company nor of a subsidiary was
$25,000. In 1996, under the 1989 Restricted Stock Plan for Non-Employee
Directors, one-half of the annual retainer was paid in restricted stock of the
Company and one-half was paid in cash.
Each non-employee director is paid a fee of $1,200 for attendance at a
Board or a committee meeting and an additional $350 for each committee meeting
chaired. Directors who are present or retired employees of the Company or a
subsidiary do not receive such compensation for service on the Board or
committees thereof and are not eligible to participate in the plans described
herein for non-employee directors. Non-employee directors are not eligible to
participate in any of the plans discussed in the Human Resources Committee
Report on Executive Compensation. Directors may be reimbursed for reasonable
travel expenses incurred in attending Board and committee meetings.
In 1996, the Governance Committee of the Board of Directors reviewed
compensation policies currently in place for non-employee members of the Board
of Directors and adopted a formal policy for the compensation of directors in
order to further link director compensation with the long-term interests of
stockholders. According to the policy, director compensation should: a) enable
the Company to attract and retain the talent needed to fulfill the
responsibilities of the Board of Directors in a superior and independent
fashion; b) align the interests of the directors with the long-term interests of
stockholders through stock ownership; c) compensate directors for their time,
efforts and capacity to assist the Company in the achievement of its long-term
goals; and d) be validated in its efficacy through review by an independent
compensation consultant.
In connection with the adoption of the director compensation policy,
several changes were made to the director compensation program in 1996. The 1989
Restricted Stock Plan for Non-Employee Directors was terminated effective
September 23, 1996. The annual retainer was reduced effective January 1, 1997,
from $25,000 to $15,000 and the Directors Stock and Deferred Compensation Plan
(the "Directors Plan"), described below, was adopted effective September 23,
1996. The Retirement Plan for non-employee directors was terminated for current
and future directors effective September 23, 1996. Former directors who had
retired from the Board prior to September 23, 1996 will continue to receive
benefits under the Retirement Plan. Under the terms of the Retirement Plan as
formerly in effect, a director who retired after ten years of service on the
Board was entitled to receive an annual lifetime retirement benefit equal to the
annual retainer paid to such director immediately prior to retirement. All
current directors waived any right to receive retirement benefits under the
Retirement Plan, and the value of such benefits was converted into stock
equivalent units under the Directors Plan. In addition, shares of restricted
stock previously awarded to directors under the 1989 Restricted Stock Plan for
Non-employee Directors as to which an election for current taxation had not been
made were canceled, and an equal number of stock equivalent units was awarded.
In the case of restricted shares as to which an election for current taxation
had been made, the restrictions on such shares were canceled.
Under the Directors Plan, each non-employee director receives an annual
award of 550 stock equivalent units, and may elect to defer all or a portion of
his or her cash compensation (annual retainer and meeting fees) for payment to a
future date specified by the director. A participating director may elect to
have his or her deferred account either credited annually with interest (accrued
at the rate of the average of the yields at issuance of five-year U.S. Treasury
Notes issued during the prior twelve-month period plus 1%) on the average daily
balance held in such accounts for the preceding plan year, or translated into
stock equivalent units. The number of stock equivalent units is equal to the
amount of cash compensation divided by the fair market value of Company Common
Stock on the date such compensation would otherwise have been paid.
Account balances held under the Directors Plan are paid out in cash or
an equivalent number of shares of Company Common Stock, at the election of the
director. Amounts may be paid out either in a lump sum or in installments, at
the directors' election. Dividend equivalents, in an amount equal to the amount
of dividends that would have been payable had each stock equivalent unit
constituted a share of Company Common Stock, are payable in cash at the end of
each plan year on all stock equivalent units credited under the plan.
In 1992 the Board of Directors established a Charitable Endowment
Program for members of the Board of Directors who have at least one year of
service as a director. A portion of the program is currently funded by life
insurance. The Company intends to make tax deductible charitable contributions
of $1 million to charities recommended by each director, paid out over a period
of ten years following the death of the director. Directors derive no financial
benefit from the program since any insurance proceeds and charitable deductions
accrue solely to the Company.
The Company's Board of Directors annually appoints certain directors to
serve on standing committees of the Board of Directors, which currently include
the Audit, Human Resources, Governance, Finance and Executive Committees.
The Audit Committee's primary responsibility is to review and report to
the Board on the Company's accounting policies, the adequacy of its financial
and internal auditing controls, and the reliability of financial information
reported to the public. The Committee has the authority to approve the scope of
the annual audit and to authorize the release of annual financial statements.
The Audit Committee held four meetings during 1996. Mr. Ferland (Chairman), Mr.
Booth, Mr. Powers and Mr. Washburn, none of whom is an employee of the Company
or a subsidiary, presently serve on the Audit Committee.
The Human Resources Committee reviews remuneration for the Company's
executives as described in the Human Resources Committee Report on Executive
Compensation located on page x. The Committee reviews the Company's benefit
plans and policies and practices with respect to employee relations. The
Committee acts as Plan Administrator for the 1985 Stock Option Plan, the 1995
Stock Option Plan, the Directors' Retirement Plan, the Directors Stock and
Deferred Compensation Plan, and the Long-Term and Short-Term Incentive Plans.
The Human Resources Committee held six meetings during 1996. Mr. Ellis
(Chairman), Mr. Campbell, Mr. Powers and Mrs. Rice, none of whom is an employee
of the Company or a subsidiary, presently serve on the Human Resources
Committee.
The Governance Committee reviews the organization and performance of the
Board of Directors and reviews and recommends Director compensation. The
Committee also reviews the Company's policies and practices with respect to
community relations and recruits and nominates candidates for Board membership
in conjunction with the Chief Executive Officer. In accordance with the
Company's Bylaws, any nomination by a stockholder must have been made by proper
written notice given to the Corporate Secretary not later than February 15, 1997
in order to be considered for the 1997 Annual Meeting. The Governance Committee
held seven meetings during 1996. Mr. Campbell (Chairman), Mr. Alvord, Mr.
Dooley, Mr. Ellis and Mrs. Rice, none of whom is an employee of the Company or a
subsidiary, presently serve on the Governance Committee.
Other committees of the Board of Directors are the Finance Committee
and the Executive Committee. The Finance Committee reviews the investment plan
of the Company, investor relation activities, and other matters involving the
Company's financial resources. Mr. Dooley (Chairman), Mr. Alvord, Mr. Booth, Mr.
Ferland and Mr. Washburn, none of whom is an employee of the Company or a
subsidiary, presently serve on the Finance Committee, which held five meetings
in 1996. The Executive Committee acts on behalf of the Board of Directors in the
interim between meetings of the Board when prompt, formal action is necessary.
Mr. Wilde (Chairman), Mr. Alvord, Mr. Campbell, Mr. Dooley, Mr. Ellis and Mr.
Ferland presently serve on the Executive Committee, which did not meet in 1996.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The Company is unaware of any stockholder who on February 1, 1997 was
the beneficial owner of 5 percent or more of Company Common Stock outstanding.
The number of shares of Company Common Stock beneficially owned as of
February 1, 1997 by each nominee and director, by each executive officer named
in the Summary Compensation Table, which in each case represents less than 1% of
the Company Common Stock outstanding as of such date, and by all current
directors and executive officers as a group, is shown in the table below. The
table also sets forth the number of stock equivalent units credited to
non-employee directors participating in the Directors Stock and Deferred
Compensation Plan, which is explained in detail on page x. Individuals are fully
at risk as to the value of stock equivalent units held in their deferred
accounts, which will be converted to an equal number of shares of Company Common
Stock, or its equivalent cash value, at the election of the director, upon his
or her termination of board service.
Unless otherwise indicated, each officer, nominee and director has sole
voting and investment power (or shares such powers with a family member) with
respect to Company Common Stock shown as held directly. All shares shown as held
indirectly reflect sole voting and investment power exercised by the individual
specified unless otherwise indicated.
<TABLE>
<CAPTION>
Stock Equivalent Total Number of Shares
Beneficial Owner Directly Held Indirectly Held Units and Stock Equivalent Units
- ---------------- ------------- --------------- ----- --------------------------
<S> <C> <C> <C> <C>
Joel B. Alvord 618 3,008 3,626
Saul L. Basch 41,770(1) 41,770
Richard H. Booth 1,000 1,000
Colin G. Campbell 2,386 1,200(2) 2,404 5,990
Richard G. Dooley 6,791 6,030 12,821
Michael L. Downs 99,420(3) 99,420
William B. Ellis 600 3,029 3,629
E. James Ferland 1,000 2,000(4) 3,206 6,206
John J. Kelley 112,877(5) 112,877
William A. Kerr 40,739(6) 40,739
Gordon W. Kreh 256,703(7) 700(8) 257,403
John A. Powers 2,045 6,350 8,395
Lois D. Rice 752 200(9) 3,597 4,549
John M. Washburn, Jr. 10,503 2,000(10) 6,235 18,738
Wilson Wilde 891 655(11) 1,546
</TABLE>
All Current Directors and Executive Officers
as a Group (19 in number): 774,019 (12)
(1) Includes 40,000 shares subject to options to purchase shares of Company
Common Stock which are exercisable on or before April 1, 1997.
(2) 400 shares held in trusts for benefit of children and 800 shares held as
trustee of trusts for benefit of nieces and nephews, over which Mr.
Campbell exercises shared voting and investment power.
(3) Includes 85,000 shares subject to options to purchase shares of Company
Common Stock which are exercisable on or before April 1, 1997.
(4) Shares held by spouse.
(5) Includes 104,200 shares subject to options to purchase shares of Company
Common Stock which are exercisable on or before April 1, 1997.
(6) Includes 40,000 shares subject to options to purchase shares of Company
Common Stock which are exercisable on or before April 1, 1997.
(7) Includes 242,500 shares subject to options to purchase shares of Company
Common Stock which are exercisable on or before April 1, 1997.
(8) 300 shares held by spouse, 200 shares held by daughter and 200 shares
held by son.
(9) As trustee.
(10) Shares held by spouse.
(11) 160 shares held by spouse. 495 shares held in a charitable foundation,
over which Mr. and Mrs. Wilde exercise shared voting and investment
power.
(12) Includes 657,200 shares subject to options to purchase shares of
Company Common Stock which are exercisable on or before April 1, 1997.
Assuming the exercise of all such options, the percentage of Company
Common Stock owned by directors and executive officers as a group would
be 3.74% of the Company Common Stock outstanding.
Section 16(a) Beneficial Ownership Reporting Compliance
Ownership of and transactions in Company stock by executive officers and
directors of the Company are required to be reported to the Securities and
Exchange Commission pursuant to Section 16(a) of the Securities Exchange Act of
1934. To the Company's knowledge, based solely on a review of the copies of
reports that were furnished to the Company and written representations that no
other reports were required, all required reports were made in a timely manner
with respect to the fiscal year ended December 31, 1996.
HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Executive compensation programs for the senior officers of the Company
(the "executives") are administered by the Human Resources Committee of the
Board of Directors (the "Committee"). A nationally recognized compensation
consultant also reviews and analyzes the Company's executive compensation
policies and practices in order to advise the Committee as more fully described
below. The Committee believes that the structure of the Company's compensation
programs provides a direct link between Company performance and executive
compensation.
Under the direction of the Committee, executive compensation programs
are structured to provide performance-based incentives to achieve the Company's
short and long-term goals, and to enable the Company to attract and retain key
individuals. In 1996, the Company used a group of comparison companies (the
"Comparison Group") to determine competitive executive pay levels and practices.
The Comparison Group was composed of 18 leading property/casualty insurance and
engineering companies (including five of the six insurance companies in the S&P
500 Property/Casualty Insurance Index used in the Performance Graphs located on
page x). Practices analyzed included pay level and components, stock ownership
levels and short and long-term incentives. Base salary and variable compensation
paid under the Company's incentive plans (Short-Term and Long-Term Incentive
Plans and the 1995 Stock Option Plan) in 1996 to executives as a group, and for
Mr. Kreh individually, were below the median range of that paid to executives by
the companies in the Comparison Group according to information compiled by the
Company's compensation consultant.
Base salary adjustments are made for executives upon an analysis of
individual performance, changes in responsibilities, and comparative data for
base salaries paid to executives with similar responsibilities in the Comparison
Group. Annual salary adjustments for executives are recommended by the Chief
Executive Officer and approved by the Human Resources Committee. The Committee
determines adjustments for the Chief Executive Officer. For 1996, executives'
base salary adjustments were made as a result of increases in responsibilities
and for competitive reasons based upon comparisons with the Comparison Group.
Mr. Kreh received an 8% base salary increase based on the Committee's assessment
of the competitive factors described above.
The Company's Short-Term Incentive Plan provides for the annual award of
bonuses to key employees (presently limited to the officer group of the Company,
including executive officers) at the end of the fiscal year provided certain
performance measures are achieved. Under a schedule defined by the plan that
establishes threshold, target and maximum levels, the Committee establishes a
pool of incentive award dollars based on the actual percentage of Annual
Budgeted Net Income Per Share (cited in the Business Plan of the Company)
achieved for the year and the performance of the Company as compared to the
performance of the insurance industry and/or other appropriate industries with
reference to such performance measures as the Committee deems appropriate. In
evaluating Company performance, the Committee considers such factors as (listed
in order of importance, from highest to lowest): growth in operating income;
combined ratio; return on equity; and engineering services' margin. For 1996,
the Committee evaluated Company results achieved for these measures, as
compared, where appropriate, to published results achieved or anticipated for
the property/casualty insurance industry as a whole. In 1996, the Actual
Percentage of Budgeted Net Income Per Share achieved the threshold level set
under the schedule defined under the plan for establishment of the bonus pool;
the Company outperformed the property/casualty insurance industry for both
return on equity and combined ratio and the engineering services' operating
margin was superior.
Once the pool is established, individual awards are then determined by
the Chief Executive Officer, based on the participant's performance during the
plan year. The awards may range from 0 to 100% of the participant's base salary.
The Committee determines the award for the Chief Executive Officer and has final
authority over all awards made under the plan. Mr. Kreh was awarded $x based on
the Committee's evaluation of the Company's 1996 performance as described above.
Long-term incentives are provided to executives through awards made
under the Company's Long-Term Incentive Plan. Under the plan, the Committee
establishes specific Performance Goals for each participant (or all participants
as a group) at the beginning of each Performance Period based on one or more of
the following Performance Measures: combined ratio; expense ratio; net income
per share; return on equity; total stockholder return; return on assets;
revenues; operating margin; increase in book value; and market share. For each
Performance Goal, an award schedule of Performance Contingent Units is
established for minimum, target and maximum attainment of such goal, based on a
percentage of a participant's base salary rate at the beginning of the period
(adjusted for any promotional increases during the Performance Period) divided
by the average of the high and low trading prices of Company Common Stock on the
first trading date of the Performance Period. If the minimum level of
achievement is not reached for the Performance Measures, the payout will be
zero.
The actual Performance Contingent Award to be paid to a participant at
the conclusion of the Performance Period is based on the level of attainment of
the Performance Goals established for such period. The maximum award of
Performance Contingent Units for any participant for a Performance Period cannot
exceed 60% of the participant's base salary divided by the fair market value of
Company Common Stock on the first trading day of the Performance Period. Awards
are prorated for actual length of service as an eligible executive during the
Performance Period. Any payments are made in cash or in shares of Company Common
Stock (which may be restricted shares), as determined by the Committee. At the
discretion of the Committee, dividend equivalents may be paid in conjunction
with award payouts made under the plan, equal to the amount of cash dividends
that would have been paid during the Performance Period with respect to an award
of Performance Contingent Units if the award had been made in Company Common
Stock. For the three-year Performance Period which runs January 1, 1996 through
December 31, 1998, the Performance Measures are net income per share, expense
ratio and return on equity.
The Committee determined that payouts to be made under the plan for the
Performance Period ending in 1996 would be made in shares of restricted stock in
order to further link executives' interests with long-term Company performance.
These shares cannot be sold or transferred and will be forfeited if the
executive leaves the Company within a period of five years for reasons other
than death, disability, retirement, involuntary termination other than for
cause, or resignation with the consent of the Human Resources Committee of the
Board of Directors of the Company. For the Performance Period ending in 1996,
the net income per share threshold was not achieved, the expense ratio target
was exceeded, and the return on equity threshold was achieved. The Committee
awarded 2,666 shares of restricted stock to Mr. Kreh under the Long-Term
Incentive Plan for the Performance Period ending in 1996 based on these results.
During 1996, executive officers were eligible for awards under the
Company's 1995 Stock Option Plan. Plan awards provide executives with long-term
incentives and reinforce the link between executives' long-term interests and
those of stockholders. Stock options are awarded based upon the market price of
Company Common Stock on the date of the grant and provide a vehicle to reward
executives only if the price of Company Common Stock increases above the grant
price.
Awards to be made to specific participants are determined by the
Committee in its discretion. The Company's outside compensation consultant
reviews each executive's award in comparison to awards made to individuals
employed by companies in the Comparison Group and makes recommendations as to
whether the awards made to Company executives should be adjusted. Several
factors were considered in determining the size of stock option grants to
executive officers in 1996, including competitive practices at companies in the
Comparison Group, the Committee's perception of the recipient's ability to
affect the results of the Company over time and individual levels of
responsibility. Mr. Kreh was awarded 75,000 stock options in 1996 based on the
Committee's review of the criteria outlined above.
Under Internal Revenue Service rules, publicly held corporations may not
deduct certain types of compensation paid to the Chief Executive Officer and the
next four most highly compensated individuals to the extent such compensation
exceeds $1 million. Certain types of compensation are excluded from this
limitation, including performance-based compensation paid under plans that are
approved by stockholders and administered by outside directors.
Based on the current provisions of this law, any compensation derived
from the exercise of stock options granted under the 1985 and 1995 Stock Option
Plans or awards made under the Long-Term Incentive Plan will be exempt from the
limit on the corporate tax deduction. Any amounts payable under the Short-Term
Incentive Plan to the named executives would count toward the limitation as
would base salary and the value of any vesting restricted stock under the Stock
Option Plan, but these amounts are not expected to reach the $1 million limit
for any of the named executives. Under the current provisions of the law,
compensation paid to executives during 1996 was fully deductible and the Company
believes that all compensation paid to executives during 1997 will also be fully
deductible.
Respectfully submitted by the Human Resources Committee of the Board of
Directors of the Company
William B. Ellis (Chairman)
Colin G. Campbell
John A. Powers
Lois D. Rice
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth cash compensation for the five most
highly compensated executive officers of the Company serving as executive
officers on December 31, 1996 for services rendered in all capacities to the
Company and its subsidiaries during the last three fiscal years.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Awards Payouts
Securities
Restricted Underlying All Other
Stock Options LTIP Compen-
Name and Principal Position Year Salary Bonus Award(s)(1) (Number Payouts(2) sation(3)
of shares)
<S> <C> <C> <C> <C> <C> <C> <C>
Gordon W. Kreh, President 1996 $527,692 x $121,636 75,000 0 $ 4,750
and Chief Executive Officer 1995 $484,615 $300,000 0 47,500 $ 50,625 $ 6,532
1994 $419,231 $157,500 0 50,000 $ 94,380 $ 7,210
John J. Kelley 1996 $302,692 $ 60,000 $ 49,549 30,000 0 $ 2,250
Senior Vice President 1995 $267,308 $125,000 0 30,000 $ 18,563 $ 5,922
1994 $229,077 $ 75,000 0 25,000 $ 38,125 $ 6,737
Michael L. Downs 1996 $301,154 $ 30,000 $ 47,313 30,000 0 $ 4,500
Senior Vice President 1995 $248,462 $125,000 0 30,000 $ 11,645 $ 6,532
1994 $180,442 $ 60,000 0 25,000 $ 9,319 $ 7,160
Saul L. Basch, Senior 1996 $310,385 $ 60,000 $ 22,539 20,000 0 $ 4,500
Vice President, Treasurer 1995 $75,000 $ 30,000 0 20,000 $ 1,689 0
and Chief Financial Officer(4)
William A. Kerr 1996 $267,308 $ 50,000 $ 20,029 20,000 0 $ 4,750
Senior Vice President(4) 1995 $72,115 $ 30,000 0 20,000 $ 1,875 0
</TABLE>
(1) For 1996, represents Long-Term Incentive Plan awards for 1994-1996
Performance Period, which were paid out in shares of Restricted Stock with a
five-year vesting period as explained in more detail in the Human Resources
Committee Report on Executive Compensation located on page x. The value of
restricted stock shown in this column is calculated by multiplying the closing
price of Company Common Stock on the date the restricted shares were granted by
the number of shares awarded. Recipients are entitled to receive dividends on
restricted stock to the extent paid on Company Common Stock generally. None of
the named executives held any shares of restricted stock as of 12/31/96.
(2) The LTIP payouts column shows cash payouts made under the Company's
Long-Term Incentive Plan for the performance periods that ended in 1995 and
1994. Payouts for the performance period that ended in 1996 were made in shares
of restricted stock, as reflected in the Restricted Stock Awards column.
(3) For 1996, reflects Company contributions under the Company's Thrift
Incentive Plan.
(4) Compensation for Mr. Basch and Mr. Kerr is reported beginning in 1995, when
they became executive officers of the Company, and their 1995 cash compensation
reflects the fact that they were not employed by the Company for a full year in
1995.
<PAGE>
STOCK OPTION AND LONG-TERM INCENTIVE PLAN TABLES
The following tables show information with respect to stock options and
potential awards under the Company's Long-Term Incentive Plan for the
individuals named in the Summary Compensation Table.
Option Grants in Last Fiscal Year (ended 12/31/96)
<TABLE>
<CAPTION>
Potential Realizable
Individual Grants Value at Assumed Annual
Rates of Stock Price
Percent of Appreciation for
Number of Total Option Term(2)
Securities Options
Underlying Granted to Exercise
Options Employees or Base Expira-
Name Granted in Fiscal Price tion
(1) Year ($/Share) Date 5% 10%
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gordon W. Kreh 75,000 19% $50.00 3/24/2006 $ 2,357,250 $5,976,000
John J. Kelley 30,000 7.6% $50.00 3/24/2006 $ 942,900 $2,390,400
Michael L. Downs 30,000 7.6% $50.00 3/24/2006 $ 942,900 $2,390,400
Saul L. Basch 20,000 5.1% $50.00 3/24/2006 $ 628,600 $1,593,600
William A. Kerr 20,000 5.1% $50.06 1/1/2006 $ 630,800 $1,596,800
20,000 5.1% $50.00 3/24/2006 $ 628,600 $1,593,600
</TABLE>
(1) Options granted are nonstatutory stock options. The exercise price of the
option is equal to the fair market value of the stock on the date of the grant.
Payment for the shares as to which an option is exercised may be made in cash or
in shares of Company Common Stock or a combination of cash and stock. These
options may not be exercised any earlier than one year or any later than ten
years from the date of the grant. Participants will be permitted to satisfy any
federal, state or local tax requirements due upon exercise of a stock option by
delivering to the Company already-owned Company Common Stock or by directing the
Company to retain stock otherwise issuable upon such exercise to the
participant, having a fair market value equal to the amount of the tax.
(2) These figures are calculated pursuant to SEC rules by multiplying the number
of options granted by the difference between the option exercise price and a
future hypothetical stock price, assuming the value of Company Common Stock
appreciates 5% or 10% each year over the original option price, compounded
annually, for the life of the options. These figures are not intended to
forecast possible future appreciation, if any, of the Company's stock price.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year (ended 12/31/96) and FY-End
Option Values
Number of
Securities Value of
Underlying Unexercised In-
Unexercised the-money
Shares Options at Options at
Acquired on Value Fiscal Year-end Fiscal Year-end
Name Exercise Realized (#) ($)
(#) ($) Exercisable/ Exercisable/
Unexercisable Unexercisable
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gordon W. Kreh 0 $0 167,500/75,000 $208,525/0
John J. Kelley 0 $0 74,200/0 $130,450/0
Michael L. Downs 0 $0 55,000/30,000 $130,450/0
Saul L. Basch 0 $0 20,000/20,000 0/0
William A. Kerr 0 $0 0/40,000 0/0
</TABLE>
<TABLE>
<CAPTION>
Long-Term Incentive Plan -- Awards in Last Fiscal Year (ended 12/31/96)
Estimated Future Payouts under Non-stock
Number of Performance Price-based Plans(2)
Shares, or Other
Units or Period until
Other Maturation or
Name Rights (1) Payout Threshold Target Maximum
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gordon W. Kreh * 1996-1998 2,847 3,746 5,993
John J. Kelley * 1996-1998 1,044 1,373 3,296
Michael L. Downs * 1996-1998 1,025 1,348 3,236
Saul L. Basch * 1996-1998 1,139 1,498 3,596
William A. Kerr * 1996-1998 949 1,249 2,996
</TABLE>
(1) The actual number of performance units awarded at the end of each period, if
any, is not yet determinable because the number of units earned will be based on
Company performance during the Performance Period as described below.
(2) Represents the potential number of Performance Contingent Units that may be
awarded to participants for the 1996-1998 Performance Period for the indicated
levels of performance under the terms of the Long-Term Incentive Plan, a
detailed description of which is contained in the Human Resources Committee
Report on Executive Compensation on page x. If the threshold, target or maximum
goals are reached, payouts under the plan will be made in shares of Company
Common Stock (which may be restricted shares) at the end of the Performance
Period, or their corresponding cash value at that time. Awards are prorated for
length of service during the Performance Period, and for varying degrees of
performance between the threshold and maximum levels of performance. (For the
Performance Period that ended on December 31, 1996, payouts were made in shares
of restricted stock as indicated in the Summary Compensation Table located on
page x).
Retirement Plans
The following table shows the estimated annual amounts payable on a life annuity
basis to a participant retiring on 12/31/96 at age 65 under the Company's
qualified defined benefit pension plan, as well as nonqualified supplemental
pension plans that provide benefits that would otherwise be denied participants
by reason of certain Internal Revenue Code limitations on qualified plan
benefits, based on compensation that is covered under the plans and years of
service with the Company. All of the executives named in the Summary
Compensation Table participate in these plans. (A small portion of Mr. Kreh's
annual retirement benefit as calculated pursuant to the table shown below will
be paid from The Boiler Inspection and Insurance Company of Canada's retirement
plan due to Mr. Kreh's initial service and earnings with that affiliate.)
Final Years of Service
Average
Earnings 15 20 25 30 35
- -------- -- -- -- -- --
200,000 45,932 61,242 76,553 82,553 88,553
300,000 69,932 93,242 116,553 125,553 134,553
400,000 93,932 125,242 156,553 168,553 180,553
500,000 117,932 157,242 196,553 211,553 226,553
600,000 141,932 189,242 236,553 254,553 272,553
700,000 165,932 221,242 276,553 297,553 318,553
800,000 189,932 253,242 316,553 340,553 364,553
900,000 213,932 285,242 356,553 383,553 410,553
Benefits payable under the Company's Retirement Plan are based on the average of
the participant's highest three consecutive years of earnings in the 5-year
period before retirement, and on years of service. Earnings covered under the
plan include compensation listed in the Summary Compensation Table under the
"Salary", "Bonus", "Restricted Stock Awards" and "LTIP Payouts" columns.
(Restricted stock awarded under the Company's stock option plans is included in
the year the shares vest due to the expiration of the restricted period of time,
based on the fair market value of the shares on the vesting date. Restricted
stock awarded under the Company's stock option plans after January 1, 1994 is
not included in the definition of earnings under the plan. Restricted stock
awarded under the Company's Long-Term Incentive Plan is included as earnings
under the plan in the year the shares are awarded, based on the fair market
value of the shares on the award date.) Credited years of service as of December
31, 1996 for the individuals named in the Summary Compensation Table is as
follows: Mr. Kreh, 26 years; Mr. Kelley, 25 years; Mr. Downs, 24 years; Mr.
Basch, one year; and Mr. Kerr, one year.
In addition, the executive officers named in the Summary Compensation
Table are covered under a supplemental retirement/death benefit program. Under
this program, if the executive officer should die prior to his retirement, his
beneficiary will be entitled to one of the following two options that has been
selected by the executive: 1) an annual death benefit equal to 50% of the
executive's base salary for fifteen years; or 2) three times the executive's
base salary at the time of his death. At retirement, the executive is entitled
to an annual retirement supplement equal to 35% of his base salary for fifteen
years. An executive's right to this benefit vests over a five-year period,
beginning on the date he is appointed an executive officer.
Employment Arrangements
The members of the Board of Directors believe that it is in the best
interests of the stockholders for the Company to have employment agreements with
each of the executive officers named in the Summary Compensation Table (and
certain other key employees) to (i) encourage them to remain in the Company's
employ during the uncertain times which attend a threatened or actual change in
control of the Company; and (ii) provide specified benefits in the event of
certain terminations unrelated to a change in control event. Under the terms of
the agreements, generally, a change in control shall be deemed to have occurred
if (i) any person acquires securities of the Company representing 25% or more of
the Company's then outstanding securities; (ii) current directors and those
replacement or additional members of the Board subsequently approved by a vote
of at least two-thirds of the Board, cease to make up at least two-thirds of the
Board; (iii) a merger or consolidation of the Company occurs such that the
stockholders of the Company prior to such merger own less than 60% of the
surviving corporation; or (iv) a complete liquidation or dissolution of the
Company or disposition of all or substantially all of the assets of the Company.
A threatened change in control shall be deemed to have occurred if (i) the
Company enters an agreement, which if consummated would result in a change in
control; (ii) the Company or any person announces an intention to take actions
which if consummated would constitute a change in control; (iii) any person
acquires securities of the Company representing 10% or more of the Company's
then outstanding securities; or (iv) the Board determines that a threatened
change in control has occurred.
Upon a change in control, the following will occur: (i) under the
Company's Long-Term Incentive Plan, the fair market value of Performance
Contingent Units allocated to the executive for each three year Performance
Period within which the date of the change in control falls, pro-rated for
actual service within each Performance Period prior to such date, will be paid,
and the restrictions on any shares of restricted stock awarded will lapse and
any amounts deferred will be paid; (ii) under the Company's Short-Term Incentive
Plan, an award will be paid calculated as though target performance was achieved
for the year within which the change in control occurs; (iii) under the
Company's Stock Option Plan, all stock options outstanding on the date of the
change in control will become immediately exercisable and the restrictions on
any restricted stock previously awarded will lapse.
If an executive's employment with the Company is terminated within the
term of the agreement following a change in control or, under certain
circumstances, a threatened change in control, other than for cause or
resignation (other than for good reason, which means termination as a result of,
among other things, the involuntary assignment of such executive to duties
inconsistent with the executive's position prior to such event or a reduction of
the executive's current compensation or benefits), the executive becomes
entitled to the following: (i) three times the sum of the executive's base
salary in effect at the time of such event and the three-year average of sums
paid to the executive under the Company's Short-Term and Long-Term Incentive
Plans; (ii) a fully vested supplemental retirement benefit, as described above
under Retirement Plans; (iii) credit for an additional three years of service
under the Company's retirement plans; (iv) three years of welfare benefits
provided at the Company's then current subsidy rate; (v) reimbursement of any
costs incurred by the executive to enforce the agreement; (vi) outplacement
services; and (vii) payment to the executive equal to the amount of any excise
tax imposed upon the executive with respect to the foregoing payments as a
result of the occurrence of such event.
The agreements also provide certain severance benefits in the event that
the Company terminates the employment of the executive other than for cause or
in connection with a change in control. In such event, the executive would be
entitled to receive severance payments in installments over a period of two
years equal to two times the executive's base salary, outplacement services and
reimbursement of any costs incurred to enforce the agreement if the executive is
successful in such effort.
The Company has established a trust (which would be funded upon a
threatened change in control) pursuant to which payments under these agreements
and certain other benefit plans will be paid in the event of a threatened or
actual change in control.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There are none.
TRANSACTIONS WITH MANAGEMENT
Fleet Financial Group, of which Mr. Alvord served during 1996 as
Chairman and a director, performed various services for the Company in 1996,
among which were acting as the trustee for the Company's Thrift Incentive Plan,
the Retirement Plan and the Employee Stock Ownership Plan. The Company and
certain of its subsidiaries also maintained various accounts with Fleet
Financial Group during 1996. In the opinion of the Company, the fees for these
services were comparable to those charged by other financial institutions. The
Company and its subsidiaries maintain banking relationships with various other
financial institutions.
PERFORMANCE GRAPHS
The following two line-graphs compare cumulative, five-year and
ten-year total stockholder returns on Company Common Stock on an indexed basis
with the S&P 500 Stock Index and the S&P 500 Property/Casualty Insurance Index,
based on an initial investment on December 31, 1991 and December 31, 1986,
respectively, of $100, assuming that all dividends, if any, were reinvested.
<PAGE>
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Hartford Steam Boiler 100 105.47 83.72 78.54 103.51 100.80
S&P 500 100 117.11 115.04 120.67 163.38 198.53
S&P Property/Casualty 100 107.62 118.46 120.03 165.13 203.05
</TABLE>
<TABLE>
<CAPTION>
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hartford Steam Boiler 100 100.98 167.70 252.36 237.83 290.23 306.12 242.98 227.95 300.43 292.56
S&P 500 100 95.97 98.88 144.55 141.24 176.83 207.08 203.42 213.38 288.91 351.06
S&P Property/Casualty 100 105.25 122.73 161.62 156.60 204.31 219.88 242.04 245.24 337.39 414.86
</TABLE>
PROPOSAL 2
PROPOSAL TO APPROVE RESTRUCTURING
The following description is qualified in its entirety by reference to
the Agreement and Plan of Share Exchange attached hereto as Appendix A, certain
provisions of the Connecticut General Statutes relating to the rights of
dissenting stockholders attached hereto as Appendix B, the Articles of
Incorporation of HSB Group attached hereto as Appendix C, and the Bylaws of HSB
Group attached hereto as Appendix D. The transactions described below, including
those contemplated by and carried out in connection with the Agreement and Plan
of Share Exchange are sometimes referred to herein as the Restructuring.
Recommendation of Directors
The Board of Directors of the Company and HSB Group have each approved
the Restructuring which provides for the acquisition of all outstanding shares
of Company Common Stock in exchange for an equal number of shares of HSB Group
Common Stock and the acquisition of all outstanding shares of Company Preferred
Stock in exchange for an equal number of shares of HSB Group Preferred Stock
pursuant to Section 33-816 of the Connecticut General Statutes. All of the
outstanding shares of Company Preferred Stock are held by General Reinsurance
Corporation. General Reinsurance has indicated that it intends to vote in favor
of the Restructuring.
The Board of Directors of the Company believes that the Restructuring is in the
best interests of the Company and its stockholders. Accordingly, the Board of
Directors unanimously recommends that stockholders vote FOR Proposal 2 to
approve the Restructuring.
Purposes of Restructuring
The Board of Directors and management of the Company believe it is in
the best interests of the Company and its stockholders to approve the formation
of the holding company structure described herein. Holding company structures
are frequently used when an organization conducts regulated and unregulated
lines of businesses and are commonly found in the insurance industry.
A holding company structure would provide greater operating and
financial flexibility in connection with certain financing activities,
investments and business operations than is available under the current
structure. In addition, the Board has identified the need to increase the growth
potential of the Company to enhance stockholder value through the development or
acquisitions of related businesses. The Restructuring will give the Company
greater flexibility to develop or acquire other businesses thereby providing
more opportunities for increased earnings. For example, debt raising at the
holding company level could be used to create or acquire such businesses and to
support their future operations, as well as the operations of current
non-insurance subsidiaries, without affecting the surplus position or solvency
of the Company.
Additionally, HSB Group would not be subject to the limitations on
investments currently imposed upon the Company and its insurance company
subsidiaries pursuant to the insurance laws of the various jurisdictions under
which they are regulated. The Company does not have any present plans to
diversify into businesses or make investments which would not be permitted or
which would exceed current restrictions. However, the Board of Directors
believes that the proposed holding company structure will provide it with
enhanced flexibility and efficiency to facilitate any such diversification or
investment in the future. This flexibility will be of increased significance in
the event that the Company exercises its option to sell its interest in Radian
International LLC to The Dow Chemical Company ("Dow") on or after December 31,
1997 pursuant to the terms of the Limited Liability Corporation Agreement
between subsidiaries of the Company and Dow. In addition, future investments or
newly acquired or created subsidiaries which would create a charge against
risk-based capital under the insurance laws if held by the Company could be held
by HSB Group without affecting the Company's risk-based capital calculations.
Certain of the Company's current subsidiaries will be transferred to
HSB Group in support of the purposes of the Restructuring described above. In
addition, in order to streamline operations, Radian Corporation will be merged
into the Company shortly following the Restructuring. (Radian Corporation
currently conducts no business operations and has no assets other than its 40%
interest in Radian International LLC.) The following charts represent the
current corporate structure of the Company and the proposed structure after the
Restructuring is complete.
<PAGE>
Current
- -------
The Hartford Steam Boiler Inspection and Insurance Company
/ \ \
Domestic and Foreign \ \
Insurance Subsidiaries Engineering Services Radian
and Investment Subsidiaries Subsidiaries Corporation
\
Radian International
LLC (40% owned)
After Restructuring
- -------------------
HSB Group, Inc.
/ \
Engineering The Hartford Steam Boiler Inspection
Services and Insurance Company
Subsidiaries / \
Domestic Radian International LLC
and Foreign (40% owned)
Insurance
Subsidiaries
and Investment
Subsidiaries
<PAGE>
Other subsidiaries or assets of the Company may be transferred to HSB
Group or subsidiaries of HSB Group in the future, consistent with the purposes
of the Restructuring described herein. Any future transactions between the
Company and HSB Group will be subject to insurance regulatory restrictions, and
dependent upon the nature and size of the transaction, prior regulatory approval
may be required.
Description of the Restructuring
HSB Group is a newly incorporated Connecticut corporation with its
principal offices at One State Street, Hartford, Connecticut 06102-5024,
telephone (860) 722-1866. It was formed at the direction of the Board of
Directors of the Company for the purpose of effecting the Restructuring, and
therefore it has no operating history. There will be certain one-time and other
ongoing costs incurred in connection with the Restructuring such as
administrative expenses, registration fees and franchise and other taxes.
However, such costs, which will be borne by the Company, are not expected to be
material.
If the Restructuring is approved by stockholders, and all other
conditions contained in the Agreement and Plan of Share Exchange are satisfied,
subject to the exercise and perfection of dissenters' appraisal rights
(described below under the caption "Dissenters' Appraisal Rights") at the
effective time of the Share Exchange (the "Effective Time"), (a) each share of
Company Common Stock outstanding immediately prior to the Effective Time will be
exchanged for one share of HSB Group Common Stock, (b) each share of Company
Preferred Stock outstanding immediately prior to the Effective Time will be
exchanged for one share of HSB Group Preferred Stock (which series will have
substantially identical rights and preferences as Company Preferred Stock). In
addition, at the Effective Time each share of HSB Group Common Stock (all of
which are currently held by the Company) which are outstanding immediately prior
to the Effective Time will be canceled and restored to the status of authorized
but unissued shares of HSB Group Common Stock.
As a result immediately following the Effective Time, all outstanding
shares of Company Common Stock and Company Preferred Stock will be held by HSB
Group, and all of the outstanding shares of HSB Group Common Stock and HSB Group
Preferred Stock will be owned by the holders of shares of Company Common Stock
and Company Preferred Stock, respectively, of the Company that were outstanding
immediately prior to the Effective Time.
Following the Restructuring, the consolidated financial position and
consolidated results of operations of HSB Group should be identical to those of
the Company immediately prior to the Restructuring. As part of the
Restructuring, the Company will be transferring certain of its engineering
subsidiaries to HSB Group as a dividend on the Company Common Stock held by HSB
Group. (See charts on pages xx for organizational structures before and after
the Restructuring.) Such subsidiaries currently comprise an immaterial amount of
the consolidated assets, and provide an immaterial portion of the consolidated
revenues and net income of the Company. HSB Group will obtain funds to invest in
such subsidiaries, as well as to acquire or create new subsidiaries, primarily
from dividends paid to HSB Group on the shares of Company Common Stock it will
own following the Restructuring (which may be subject to prior approval as
described below under the caption "Required Regulatory Approvals and other
Regulatory Matters"), borrowings by HSB Group from third parties, the Company
(subject to applicable regulatory restrictions and, in some cases, prior
approval) or its subsidiaries, and any dividends HSB Group may receive from any
of its subsidiaries other than the Company. There can be no assurance, however,
as to the availability of such borrowings or amount of earnings available to be
paid as dividends to HSB Group by any of subsidiaries, including the Company.
The Company will not transfer any of its assets to HSB Group or execute
any service or cost allocation agreements with HSB Group without complying with
the insurance holding company laws that may be applicable to such transactions.
In general, such laws require that transactions between an insurance company and
its affiliates be on fair and reasonable terms, and in some cases, require prior
regulatory approval.
Required Regulatory Approvals and other Regulatory Matters
HSB Group has filed a request for an exemption from regulatory approval
of the Restructuring on behalf of the Company and its subsidiaries with the
Insurance Commissioner of the State of Connecticut. Based on informal
discussions which have taken place between the Company and authorized
representatives of the State of Connecticut Insurance Department, the Company is
unaware of any grounds for the Commissioner to deny such exemption.
In addition, because the Company has insurance subsidiaries domiciled
in Texas and the United Kingdom, the Company and HSB Group are required to file
requests for exemptions from regulatory approval with the Insurance Commissioner
of the Texas Department of Insurance and the Secretary of State of the
Department of Trade and Industry in the United Kingdom. The State of Michigan
requires non-domiciled companies to request similar exemptions from regulatory
approval. Such requests for exemption have been filed. The Company expects that
such exemptions will be granted and is unaware of any grounds for such
regulatory authorities to deny such exemptions.
Neither the Company nor HSB Group is aware of any other regulatory
approvals that are necessary in order to consummate the Restructuring other than
the filing of the Articles of Share Exchange with the Secretary of State of
Connecticut. If the requisite regulatory approvals are not received, the
Restructuring will not be effectuated. All expenses of the Company in connection
with the Restructuring, whether consummated or not, will be borne by the
Company.
Following the consummation of the Restructuring, the Company will
continue to be a Connecticut-domiciled insurance company and as such, will be
subject to regulation and examination by the Insurance Commissioner of the State
of Connecticut. The Company and its insurance subsidiaries will also continue to
be subject to regulation by the insurance commissioners or other insurance
regulatory authorities in the jurisdictions in which the Company and its
subsidiaries transact the business of insurance.
Because the Company currently has insurance subsidiaries, the Company
and its affiliates are already considered to be part of an insurance holding
company system regulated under the insurance holding company laws of Connecticut
and certain other jurisdictions. Among other things, such laws require that
transactions between insurance company members of the system and their
affiliates be on fair and reasonable terms and that certain transactions,
including dividends paid by the insurance company members exceeding prescribed
limits, receive the prior approval of the applicable insurance regulatory
authority. The Restructuring will result in the addition of HSB Group to the
holding company system. Therefore, dividends or other distributions on the
Company Common Stock paid to HSB Group or certain transactions between HSB Group
and the Company or any of its insurance subsidiaries may require prior
regulatory approval.
The Company and HSB Group as Connecticut corporations will also be
governed by the general corporate laws of the State of Connecticut.
Insurance Ratings
The Company currently has a financial condition rating from A. M. Best
Company ("Best's") of A+. Best's ratings are based upon a comprehensive review
of a company's financial performance which is supplemented by certain data,
including responses to Best's questionnaires, quarterly filings with the
National Association of Insurance Commissioners, state insurance department
examination reports, loss reserve reports, annual reports and reports filed with
the Commission. Best's undertakes a quantitative evaluation based upon
profitability, leverage/capitalization and liquidity and a qualitative
evaluation based upon the company's book of business or spread of risk,
appropriateness and quality of reinsurance, the quality, diversification and
estimated market value of its assets, the adequacy of its loss reserves and
policyholders' surplus, the capital structure of the company and its holding
company, if present, the experience and integrity of its management, and the
company's market presence. Best's rating classifications are as follows: A++ and
A+ (Superior), A and A- (Excellent), B++ and B+ (Very Good), B and B-
(Adequate), C++ and C+ (Fair), C and C- (Marginal), D (Very Vulnerable), E
(Under State Supervision) and F (In Liquidation).
Based on discussions with officials at Best's, management of the
Company does not believe that Best's will alter its current rating of the
Company as a result of the Restructuring. However, until the normal rating
process is completed in June, 1997, there can be no assurance that the Company's
rating will not be altered following the Restructuring.
Management after the Restructuring
Following the Restructuring, each director of the Company will become a
director of HSB Group, each for the then-current term to which he or she was
elected by the stockholders of the Company. Therefore, four directors will hold
office until the first annual meeting of stockholders of HSB Group which is
expected to take place in April 1998; four directors will hold office until the
1999 annual meeting of stockholders of HSB Group; and assuming their reelection
at this year's annual meeting, three directors will hold office until the 2000
annual meeting of stockholders of HSB Group. The names and certain biographical
information of such persons are set forth above under the caption "Proposal 1 -
Election of Directors."
The present executive officers of the Company will serve as executive
officers of HSB Group following the Restructuring.
Conditions to the Restructuring
The obligation of the Company and HSB Group to consummate the
Restructuring is subject to various conditions (certain of which may be waived,
as described below under the caption "Amendment, Waiver or Termination"),
including, but not limited to: (i) obtaining the required approval of the
Company's stockholders as described below under the caption "Stockholder Vote
Required for Approval"; (ii) the approval or exemption of the insurance
regulatory authorities in Connecticut, Texas, Michigan, the United Kingdom, or
any other consents, approvals or exemptions necessary or appropriate for the
consummation of the Restructuring, each such consent, exemption or approval to
be in form and substance satisfactory to the Company. (The Company is aware of
no such consents, approvals or exemptions which are required other than those of
Connecticut, Texas, Michigan and the United Kingdom); (iii) the effectiveness of
the Registration Statement under the Securities Act relating to the HSB Group
Common Stock to be issued or reserved for issuance in connection with the
Agreement and Plan of Share Exchange; (iv) authorization for listing, on
official notice of issuance, of the HSB Group Common Stock on the New York Stock
Exchange; (v) receipt of an opinion from Skadden, Arps, Slate, Meagher & Flom
LLP, tax counsel for the Company, covering the matters set forth below under the
caption "Certain Federal Income Tax Consequences"; (vi) receipt of an opinion of
counsel as to the legality of HSB Group Common Stock and HSB Group Preferred
Stock issuable in connection with the Agreement and Plan of Share Exchange; and
(vii) the absence of any injunction prohibiting or restricting in any manner the
Share Exchange or the operation of HSB Group, the Company or any of their
subsidiaries after consummation of such Share Exchange.
Dividend Policy
HSB Group does not currently, nor will it following the Restructuring,
conduct directly any business from which it will derive revenues other than the
performance of certain accounting, financial, legal, administrative and other
support services and operations relating to the business conducted by the
Company, its insurance subsidiaries and certain other subsidiaries of HSB Group.
HSB Group will fund its own operations with amounts paid by its subsidiaries for
the provision of such services, from sales of securities or debt incurred by HSB
Group and from dividends paid to HSB Group on the stock it holds in the Company
and its other subsidiaries.
For the foreseeable future, dividends on HSB Group Common Stock and HSB
Group Preferred Stock will primarily depend on the ability of the Company to pay
dividends to HSB Group. Payment of dividends by the Company will be dependent
upon the operating results, capital requirements, financial condition and
regulatory requirements of the Company and its subsidiaries.
Under Connecticut law, a corporation may not make a distribution to
stockholders if, after giving effect thereto, the corporation would not be able
to pay its debts as they become due in the usual course of business or the
corporation's total assets would be less than the sum of its total liabilities
plus, unless the articles of incorporation permit otherwise, the amount that
would be needed, if any, to satisfy the preferential rights upon dissolution of
stockholders whose preferential rights are superior to those receiving the
distribution. Additionally, under Connecticut insurance law, an insurance
company cannot pay a dividend without prior approval of the insurance
commissioner, that exceeds its earned surplus, as determined under statutory
accounting practices, or which, when combined with that of other dividends or
distributions made within the prior twelve months, exceeds the greater of (i)
ten percent of the company's surplus with respect to policyholders as of the
December 31st last preceding, or (ii) the net income for the twelve-month period
ending on the December 31st last preceding. Under Connecticut insurance law, at
least ten days' prior notice of any dividend or distribution is required to be
given to the insurance commissioner. The Commissioner may order that such
dividends or distributions not be paid if payment would cause the insurance
company's surplus to be inadequate or could lead to a hazardous financial
condition.
It is currently contemplated that, subject to the rights of holders of
any outstanding shares of HSB Group Preferred Stock, HSB Group will pay
quarterly dividends on its common stock at a rate at least equal to the current
rate of $.57 per share on Company Common Stock. During 1997, payment of such
dividends by the Company to its stockholders will require the prior approval of
the Connecticut Insurance Commissioner, as described above. In addition, there
can be no assurance that following the Restructuring dividends will be paid or
will continue to be paid at historical levels based on the aforementioned
factors and statutory restrictions, or other factors.
HSB Group Capital Stock and Rights Plan
The authorized capital stock of HSB Group consists of
50,000,000 shares of HSB Group Common Stock and 500,000 shares of HSB Group
Preferred Stock, the provisions of which are included in the HSB Group Articles
of Incorporation attached to this Prospectus and Proxy Statement as Appendix C.
Reference is made to Appendix C for the complete terms of HSB Group's Articles
of Incorporation. Also see the description of stockholders' rights described
under the caption "Comparative Stockholders' Rights" below.
At the Record Date, 20,041,707 shares of Company Common Stock and 2,000
shares of Company Preferred Stock were outstanding; 1,056,880 shares of Company
Common Stock were reserved for issuance pursuant to the 1995 Stock Option Plan,
the Long-Term Incentive Plan, the Directors Stock and Deferred Compensation
Plan, the Service Award Plan, the Thrift Incentive Plan and the conversion of
the Company Preferred Stock; and 250,000 shares of Series A Junior Participating
Preferred Stock were reserved for issuance pursuant to a Rights Agreement, dated
as of November 28, 1988 between the Company and The First National Bank of
Boston (the "Rights Plan").
For each outstanding share of Company Common Stock, the Company has
distributed one right (each a "Right") to purchase from the Company, one-two
hundredth of a share of Series A Junior Participating Preferred Stock pursuant
to the Rights Plan. If the Restructuring is approved and consummated, HSB Group
will assume the Company's rights and obligations under the Rights plan, and
Rights to purchase Series A Junior Participating Preferred Stock will become
Rights to purchase HSB Group Series A Junior Participating Preferred Stock.
The following is a description of the principal provisions of the
Rights Plan and the Rights distributed by the Company. The Rights expire on
November 28, 1998.
No separate Rights certificates of the Company have been distributed,
and none will be distributed until the earlier of (a) 10 business days following
a public announcement that a person or group of affiliated or associated persons
has been determined by the Board to be an Acquiring Person or (b) 10 business
days (or such later date as may be determined by the Board of Directors)
following the commencement of a tender offer or exchange offer that would result
in a person or group becoming an Acquiring Person. "Acquiring Person" means any
person who, together with its affiliates and associates is or becomes the
beneficial holder, directly or indirectly, of (a) 20 percent or more of the
voting stock of the Company, or (b) a substantial amount of Company Common Stock
(but no less than 10 percent) and whose acquisition of such stock the Board
determines is detrimental to the best long-term interests of the Company and its
stockholders. The date any person becomes an Acquiring Person is the "Stock
Acquisition Date."
If a person becomes an Acquiring Person except pursuant to certain
offers which the Board determines to be fair to, and in the best interests of,
the stockholders and the Company), each holder of a Right, except the Acquiring
Person, will thereafter have the right to receive, upon exercise of the Right,
Common Stock (or in certain circumstances, cash, property or other securities of
the Company) having a value equal to two times the exercise price of $110. All
Rights that are, or (under certain circumstances) were, beneficially owned by
any Acquiring Person will be null and void. However, Rights are not excercisable
for a period of 10 business days after the Stock Acquisition Date, during which
period they may be redeemed by the Company at a price of $.01 per Right.
If at any time following the Stock Acquisition Date, (a) the Company is
acquired in a merger or other business combination transaction in which it is
not the surviving corporation (other than transactions with certain Company
subsidiaries and other than a merger following an offer which the Board
determines to be fair), or (b) 50 percent or more of the assets, cash flow or
earning power of the Company is sold or transferred (other than to certain
Company subsidiaries), each holder of a Right (except Rights which previously
have been voided, as set forth above) shall thereafter have the right to
receive, upon exercise, common stock of the acquiring company having a value
equal to two times the exercise price of the Right.
Comparative Rights of Stockholders
The Company and HSB Group are both Connecticut corporations. After the
Effective Time, holders of Company Common Stock will become holders of HSB Group
Common Stock, and holders of the Company's Preferred Stock will become holders
of HSB Group's Preferred Stock, and their rights will be governed by the
Articles of Incorporation and Bylaws of HSB Group, instead of the Company's
Charter and Bylaws. HSB Group's Articles of Incorporation have been prepared in
accordance with the Connecticut Business Corporation Act ("CBCA")and give HSB
Group broad corporate powers to engage in any lawful activity for which a
corporation may be formed under the laws of the State of Connecticut. The
Company's powers are more narrow and are limited to the those specifically set
forth in its Charter. The Charter permits the Company to write boiler and
machinery and other lines of insurance and reinsurance, other than life and
endowment insurance and annuity contracts, and to perform inspections and render
inspection and engineering services in connection with the design, construction,
maintenance or operation of boilers, machinery or any equipment regardless of
whether policies of insurance are issued in connection therewith.
Except as described above with respect to the powers of each entity and
below with respect to certain other matters, HSB Group's Articles of
Incorporation and Bylaws and the Company's Charter and Bylaws are substantially
similar. A copy of HSB Group's Articles of Incorporation and Bylaws,
substantially in the form to be in effect immediately prior to the Effective
Time are attached hereto as Appendices C and D, respectively.
Certain differences between the rights of holders of HSB Group Common
Stock and HSB Group Preferred Stock are summarized below. Some of these
differences arise out of the passage of the CBCA effective January 1, 1997 which
replaced the Connecticut Stock Corporation Act ("CSCA"). According to the
official legislative history, the provisions of the CBCA were designed to be
consistent with current business practices and replace many of the outmoded
rules contained in the CSCA. The current provisions of the Company's Charter are
grandfathered (i.e., the existing provisions remain in effect despite any
conflict with the CBCA) under the new law. However, HSB Group was incorporated
after January 1, 1997 and its articles of incorporation and bylaws were drafted
in accordance with the provisions of the CBCA. Although the Company believes
that the CBCA is more modern and complete than the CSCA, the timing and purpose
of the Share Exchange is not related to the adoption of the CBCA by the
Connecticut legislature.
Dividends. Under the CBCA, a corporation may not make a distribution to
shareholders if, after giving effect thereto, the corporation would not be able
to pay its debts as they become due in the usual course of business or the
corporation's total assets would be less than the sum of its total liabilities
plus, unless the articles of incorporation permit otherwise, the amount that
would be needed, if any, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution. Additionally, under Connecticut insurance laws (which are
applicable to the Company, but not HSB Group)an insurance company cannot pay a
dividend without prior approval of the insurance commissioner, which exceeds its
earned surplus, as determined under statutory accounting practices, or which,
when combined with that of other dividends or distributions made within the
prior twelve months, exceeds the greater of (i) ten percent of the company's
surplus with respect to policyholders as of the December 31st last preceding, or
(ii) the net income for the twelve-month period ending on the December 31st last
preceding. Under Connecticut insurance laws at least ten days prior notice of
any dividend or distribution is required to be given to the insurance
commissioner. The Commissioner may order that such dividends or distributions
not be paid if payment would cause the insurance company's surplus to be
inadequate or could lead to a hazardous financial condition. Following the
Restructuring, it is anticipated that at least for the foreseeable future, the
principal source of earnings for HSB Group will be the dividends paid by the
Company which will continue to be subject to the regulatory restrictions,
including prior approval in some cases, described above.
Size of the Board of Directors. The CSCA provided that a corporation have a
minimum of three directors. The statute further provided that the number of
directorships could be fixed by the bylaws of the corporation or that the bylaws
could specify a minimum and maximum number of directorships, with the number of
directorships at any given time to be fixed by a resolution of the stockholders
or the directors. The CBCA does not specify a minimum number of directors and
provides that the number of directorships can be specified in, or fixed in
accordance with, the articles of incorporation or bylaws of the corporation. In
accordance with the CSCA, the Company's Charter and Bylaws provided that the
board would consist of no less than nine nor more than fourteen directors, the
exact number to be determined from time to time by resolution adopted by a
majority of the directors. The Articles of Incorporation and Bylaws of HSB Group
adopt the more flexible approach permitted by the CBCA and provide that the
number of directors will be determined from time to time by resolution of a
majority of the Board of Directors. The number of directors at the Effective
Time of the Restructuring will be the same number of directors serving on the
Company's Board immediately prior to the Restructuring.
Indemnification. The scope of indemnification of directors under the CSCA was
mandatory and could not be varied by the certificate of incorporation, bylaws or
agreement. Therefore, the Company's Charter and Bylaws were silent on the scope
of indemnification. As permitted by the CSCA, the Company has secured insurance
which provides broader indemnification of directors than was required under the
CSCA. Under the CBCA, there is more limited mandatory indemnification and the
permissive scope of indemnification is defined. HSB Group's Articles of
Incorporation provide that the corporation will indemnify directors to the
fullest extent permitted under the law. The CBCA permits a corporation to
indemnify its directors against liability (including judgments, settlements,
penalties and fines) if such individual acted in good faith, reasonably believed
that his or her conduct was in the corporation's best interests and, in the case
of criminal proceedings, had no reasonable cause to believe his or her conduct
was unlawful. In a proceeding by or in the right of the corporation, the
corporation may indemnify a director only for reasonable expenses, and may not
indemnify a director who is adjudged liable to the corporation. Indemnification
of such expenses is mandatory when a director is successful in the defense of
any proceeding. The CBCA also permits a corporation to pay or reimburse the
reasonable expenses incurred by a director who is a party to an action, suit or
proceeding (whether civil, criminal, administrative or investigative) in advance
of the final disposition of such action, suit or proceeding provided that (i)
such director affirms in writing such director's good faith belief that the
standard of conduct required under the statute has been met; (ii) such director
furnishes a written undertaking to repay the corporation if it is ultimately
determined that such standard has not been met; and (iii) a determination is
made pursuant to the statute that the facts then known would not preclude
indemnification under the statute. Provision for such advance of expenses in
accordance with the CBCA is included in HSB Group's Articles of Incorporation.
As permitted by the CBCA, HSB Group will continue to secure insurance which
provides broader indemnification of directors than is required under the CBCA.
Effective Time of Restructuring
The Effective Time of the Restructuring will be the time that the
Articles of Share Exchange relating to the Restructuring are filed under Section
33-819 of the Connecticut General Statutes with the Secretary of State of
Connecticut. Assuming approval of the Restructuring by stockholders of the
Company and the satisfaction or waiver of the other conditions to the
Restructuring, it is presently anticipated that the Articles of Merger will be
filed as soon as practicable after the annual meeting.
Amendment, Waiver or Termination
The Board of Directors of the Company and HSB Group, authorized
committees of such boards, or authorized directors or officers of the Company
and HSB Group may amend or modify the Agreement and Plan of Share Exchange, or
waive certain of the conditions contained therein, at any time before or after
adoption of such agreement by the stockholders of the Company, although no such
amendment, modification or waiver may affect the rights of any stockholder of
the Company in any manner that is, in the judgment of the Board of Directors of
the Company, materially adverse to such stockholder. In addition, the Boards of
Directors of the Company or HSB Group or authorized committees of such boards,
may terminate the Agreement and Plan of Share Exchange at any time before the
Effective Time, whether before or after adoption by the stockholders of the
Company.
Certain Federal Income Tax Consequences
It is a condition to the consummation of the Restructuring that the
Company receive an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, tax
counsel to the Company, in form and substance reasonably satisfactory to the
Company, dated as of the Effective Time, and based upon facts, representations
and assumptions set forth in such opinion which are consistent with the state of
facts existing as of the Effective Time, substantially to the effect that, for
federal income tax purposes (a) no gain or loss will be recognized by the
Company as a result of the Share Exchange; (b) no gain or loss will be
recognized by the stockholders of the Company on the exchange of their shares of
Company Common Stock solely for shares of HSB Group Common Stock or shares of
Company Preferred Stock for share of HSB Group Preferred Stock pursuant to the
Share Exchange; (c) the tax basis of the shares of HSB Group Common Stock and
HSB Group Preferred Stock received by stockholders in the Share Exchange will be
the same as the tax basis of the shares of Company Common Stock and Company
Preferred Stock surrendered in exchange therefor; and (d) the holding period of
the shares of HSB Group Common Stock and HSB Group Preferred Stock received in
the Share Exchange will include the period during which the shares of Company
Common Stock and Company Preferred Stock were held as capital assets at the
Effective Time.
Stockholders should consult their own tax advisors with respect to
specific tax effects to them of the Share Exchange under federal, state, local
and foreign tax laws.
Stock Plans and Other Employee Benefit Plans
At the Effective Time, the Company's 1985 Stock Option Plan and 1995
Stock Option Plan will be assumed by HSB Group and, except as follows, will not
be changed as a result of the Share Exchange. The options and rights to acquire
Company Common Stock under such plans which are outstanding at, and immediately
prior to, the Effective Time will be converted into options or rights to acquire
the same number of shares of HSB Group Common Stock at the same price per share
and on the same terms and conditions as in effect immediately prior to the Share
Exchange, and any restricted shares awarded under such plan as to which the
restrictions have not lapsed as of the Effective Time of the Share Exchange,
will be converted into the same number of shares of HSB Group Common Stock
carrying identical restrictions. Any future options, rights or restricted shares
awarded under such plans will be for shares of HSB Group Common Stock.
At the Effective Time, the Company Retirement Plan, the Excess
Retirement Plan, the Thrift Incentive Plan, the Supplemental Thrift Plan, the
Leveraged Employee Stock Ownership Plan, the Long-Term and Short-Term Incentive
Plans, the Directors Stock and Deferred Compensation Plan, the Service Award
Plan, employment agreements and Trust Agreement, which are described on pages x
through x, and all other employee benefit plans or programs of the Company, will
be assumed by HSB Group. These plans, agreements and programs will remain in
effect in accordance with their terms and, except as follows, will not be
changed as a result of the Share Exchange. It is expected that certain of such
plans, agreements and programs will be amended, where appropriate, to provide
for participation by certain employees of HSB Group, and that other technical
and conforming amendments will be made, including changing references in such
plans, agreements and programs, from Company Common Stock to HSB Group Common
Stock, to reflect the new corporate structure resulting from the Restructuring.
Approval of the Restructuring by the Company's stockholders will
constitute approval, if and to the extent such approval may be required, of the
assumption of, and amendment to, the plans, agreements and programs identified
or otherwise referred to in this section.
Automatic Dividend Reinvestment Plan (DRP) and Payroll Investment Plan (PIP)
Assuming the Restructuring is approved, HSB Group expects to adopt and
maintain a DRP and PIP substantially similar to the Company's DRP and PIP so
that holders of HSB Group Common Stock may, if they so elect, reinvest cash
dividends and certain voluntary cash amounts (or payroll deductions in the case
of the PIP) in shares of HSB Group Common Stock. It is expected that the
Company's DRP and PIP will terminate and that HSB Group's DRP and PIP will
become effective at the Effective Time of the Restructuring. If the Company
declares a cash dividend before the Effective Time which is payable after the
Effective Time, such dividends paid to participants in HSB Group's DRP or PIP
will be reinvested in shares of HSB Group Common Stock.
Trading of HSB Group Common Stock
HSB Group will apply to have HSB Group Common Stock listed on the New
York Stock Exchange. If the Restructuring is approved, it is anticipated that
the shares of HSB Group Common Stock received by the holders of Company Common
Stock will be so listed, under the trading symbol HSB as of the Effective Time
of the Restructuring. As a result, it is anticipated that the holders of Company
Common Stock will be able to trade their shares without interruption.
Transfer and Dividend Disbursement Agent
HSB Group has appointed The First National Bank of Boston, P.O. Box
644, Boston Massachusetts 02102-0644, as its transfer and dividend disbursing
agent.
If the Restructuring is approved and consummated, it will not be
necessary for holders of Company Common Stock to surrender their stock
certificates for new certificates representing their HSB Group Common Stock.
Certificates formerly representing shares of Company Common Stock will be
replaced by certificates representing HSB Group Common Stock only when such
certificates are submitted to HSB Group's transfer agent with a request that
such certificates be so replaced or when such certificates are presented for
transfer.
Dissenters' Appraisal Rights
The Company's stockholders have the right, under Sections 33-855 to
33-872, inclusive, of the CBCA to elect to object to the Restructuring and
demand payment for the "fair value" (as defined in Section 33-855 of the CBCA)
of their Company Common Stock in accordance with the provisions of Section
33-863 of the CBCA.
Stockholders of the Company who object to the Share Exchange will be
entitled, if the Share Exchange is consummated, to receive a cash payment equal
to the fair value of their shares. Fair value is to be determined as of the day
prior to the Effective Date of the Share Exchange.
The following is a summary of the procedures to be followed under
Sections 33-860 through 33-868 of the CBCA, the text of which is attached to
this Prospectus and Proxy Statement as Appendix B and which is incorporated
herein by reference. This summary does not purport to be a complete statement of
such provisions of the CBCA and is qualified in its entirety by reference to
Sections 33-855 through 33-872, inclusive, of the CBCA.
To be entitled to the cash payment, a stockholder who objects to the
Share Exchange and wishes to assert dissenters' rights must satisfy the
following conditions: i) the stockholder must deliver written notice to the
Company before the vote is taken of his or her intent to demand payment for his
or her shares if the proposed action is effectuated; and ii) the stockholder
must not vote his or shares in favor of the Share Exchange.
If the Share Exchange is approved by the Company's stockholders at
their April 24, 1997 meeting, written notice (a "Dissenters' Notice") will be
sent to all stockholders who satisfied the conditions described in the preceding
paragraph. Such notice will be sent no later than ten days after the date the
Share Exchange is approved and shall: i) state where the payment demand must be
sent and where and when certificates must be deposited; ii) inform holders of
uncertificated shares to what extent transfer of the shares will be restricted
after the payment demand is received; iii) supply a form for demanding payment
that includes the date of the first announcement to news media or stockholders
of the terms of the Share Exchange and requires that the person asserting
dissenters' rights certify whether or not he or she acquired beneficial
ownership of the shares before that date; iv) set a date by which the
corporation must receive the payment demand, which date may not be less than
thirty nor more than sixty days after the date the Dissenters' Notice is
delivered in accordance with this paragraph.
A stockholder sent a Dissenters' Notice must demand payment, certify
whether he or she acquired beneficial ownership of the shares before the date of
the first announcement to news media or stockholders of the terms of the Share
Exchange, and deposit his or her certificates in accordance with the terms of
the Dissenters' Notice. The stockholder who demands payment and deposits his or
her share certificates as described above retains all other rights of a
stockholder until these rights are canceled or modified by the Share Exchange. A
stockholder who does not demand payment or deposit his or her share certificates
where required, each by the date set in the Dissenters' Notice, is not entitled
to payment for his or her shares under Sections 33-855 to 33-872, inclusive of
the CBCA.
As soon as the Share Exchange is effected, or upon receipt of a payment
demand (provided that the Company determines that the stockholder has met the
beneficial ownership requirements outlined above), the Company shall pay to each
stockholder who complied with the conditions described above an amount which the
Company estimates to be the fair value of the shares, plus accrued interest. The
payment shall be accompanied by: i) the Company's balance sheet as of December
31, 1996, an income statement for 1996, a statement of changes in stockholders'
equity for 1996 and the latest available interim financial statements, if any;
ii) a statement of the Company's estimate of the fair value of the shares; iii)
an explanation of how the interest was calculated; and iv) a statement of the
stockholder's right to demand payment and a copy of Sections 33-855 to 33-872 of
the CBCA.
If the Company does not effect the Share Exchange within sixty days
after the date set for demanding payment and depositing share certificates, the
Company shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares. If after returning deposited
certificates and releasing transfer restrictions, the Company effectuates the
Share Exchange, it must send a new Dissenters' Notice and repeat the payment
demand procedure.
If the Company elects to withhold payment from a stockholder because he
or she was not the beneficial owner of the shares before the date set forth in
the Dissenters' Notice, the Company shall estimate the fair value of the shares,
plus accrued interest, and shall pay this amount to each dissenting stockholder
who agrees to accept it. The Company must send with the offer an explanation of
the estimate of fair value of the shares, an explanation of how interest was
calculated and a statement of the stockholder's right to demand payment.
If a dissenting stockholder does not agree with the Company's offer,
the stockholder must notify the Company of its own estimate of the value of the
shares within thirty days of the Company's offer.
If demand for payment remains unsettled, the Company may commence a
court appraisal proceeding within sixty days after the payment demand is made.
If the Company does not commence the proceeding within the sixty-day period, it
must pay each dissenting stockholder whose demand remains unsettled the amount
such stockholder demanded.
Costs and expenses of any such proceeding will be determined by the
court and will be assessed against the Company if it failed to comply with the
requirements of Sections 33-860 to 33-868, inclusive, of the CBCA and can also
be assessed against either party if it is determined that such party acted in an
arbitrary or vexatious manner or not in good faith. If the court finds that the
services of counsel for any dissenting stockholder were of substantial benefit
to other similar dissenting stockholders, and that the fees for those services
should not be assessed against the Company, the court may award to these counsel
reasonable fees to be paid out of the amounts awarded to the dissenting
stockholders who were benefited.
A stockholder's failure to vote on the Share Exchange will not
constitute a waiver of his or her dissenters' rights under Sections 33-855 to
33-872, inclusive of the CBCA. However, a vote in favor of the Share Exchange
will constitute a waiver of this right, and a vote against the Restructuring
itself will not satisfy the requirements with respect to written objection and
written demand or the other requirements summarized above of the CBCA necessary
to perfect dissenters' appraisal rights.
Failure by a stockholder to follow the steps required by Sections
33-855 to 33-872, inclusive, of the CBCA for perfecting dissenters' appraisal
rights will result in the loss of those rights. An objecting stockholder who
does not perfect his or her right to appraisal through compliance with the CBCA
will have the rights specified in the Agreement and Plan of Share Exchange.
All written communications from stockholders with respect to the
exercise of appraisal rights should be mailed to The Hartford Steam Boiler
Inspection and Insurance Company, One State Street, P.O. Box 5024, Hartford, CT
06102-5024; Attention: Corporate Secretary.
In view of the complexities of the foregoing provisions of the CBCA,
Company stockholders who are considering pursuing dissenters' appraisal rights
may wish to consult legal counsel.
Financial Statements
Complete pro forma and comparative financial information regarding the
Company and its consolidated subsidiaries giving effect to the Share Exchange
have not been included herein because immediately following the effective time
of the Share Exchange, the consolidated financial statements for HSB Group will
be substantially the same as the consolidated financial statements of the
Company immediately prior to the Share Exchange. Had the Share Exchange taken
place at December 31, 1996, consolidated equity for HSB Group shareholders would
have been $365.6 million.
Dividends and Market Price Ranges
The following table sets forth the high and low prices of Company Common Stock
for the periods indicated. The table also sets forth dividends declared on
Company Common Stock for such periods.
Dividends
Calendar Year High Low Per Share
1994 First Quarter $53 3/8 $44 $.53
Second Quarter 49 1/8 43 3/4 .53
Third Quarter 45 7/8 42 3/4 .55
Fourth Quarter 44 3/8 36 1/8 .55
1995 First Quarter $43 3/4 $39 1/4 $.55
Second Quarter 45 7/8 41 5/8 .55
Third Quarter 49 3/8 42 5/8 .57
Fourth Quarter 50 3/8 45 3/8 .57
1996 First Quarter $52 1/2 $48 $.57
Second Quarter 50 3/4 46 .57
Third Quarter 49 43 1/4 .57
Fourth Quarter 47 1/8 42 3/4 .57
On December 30, 1996, General Reinsurance Corporation exchanged its
2,000 shares of Series A Cumulative Preferred Stock of EIG, Co., the Company's
wholly owned subsidiary, for 2,000 shares of Company Preferred Stock. On January
27, 1997, the Company's Board declared a dividend in the amount of $54.17 per
share on such shares which was paid on January 31, 1997.
On February 24, 1997 the Board declared a dividend of $.57 per share on
Company Common Stock to stockholders of record on April 10, 1997 and the regular
quarterly dividend of $162.50 per share on Company Preferred Stock, both of
which are payable on April 30, 1997.
The last reported sales price of Company Common Stock on the New York Stock
Exchange on February x, 1997 was $x per share. The last reported sales price of
Company Common Stock on the Record Date was $46.375 per share. At the Record
Date, the 20,041,707 outstanding shares of Company Common Stock were held by
5,624 stockholders of record.
Legal Opinions
Certain legal matters relating to the issuance of HSB Group Common
Stock and HSB Group Preferred Stock will be passed upon by Robert C. Walker,
Senior Vice President and General Counsel of the Company. Certain other matters
will be passed upon by Skadden, Arps, Slate, Meagher & Flom LLC, New York, New
York who will rely upon Mr. Walker's opinion with respect to matters governed by
Connecticut law.
Experts
The consolidated financial statements incorporated in this Prospectus
and Proxy Statement by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 have been so incorporated in reliance on the
report of Coopers & Lybrand L.L.P., independent public accountants, given on the
authority of said firm as experts in auditing and accounting.
Stockholder Vote Required for Approval
Approval of Proposal 2 requires the approval of two-thirds of all
outstanding shares of Company Common Stock and Company Preferred Stock voting
together as a single class.
The Board of Directors unanimously recommends a vote FOR Proposal 2.
PROPOSAL 3
PROPOSAL TO AMEND THE 1995 STOCK OPTION PLAN
The Board of Directors believes that the Company's 1995 Stock Option
Plan (the "plan") has been of substantial value in facilitating the efforts of
the Company to attract and retain key employees of outstanding ability by
providing them an opportunity to acquire a proprietary interest in the Company
and giving them an additional incentive to remain with the Company and to use
their best efforts on its behalf.
The plan currently provides that a maximum of 850,000 shares of Company
Common Stock can be issued pursuant to grants made under the plan and that the
plan will terminate on April 17, 2005. The Board of Directors believes that the
grants made pursuant to the plan are an important component of the Company's
overall compensation program and are necessary to attract and retain outstanding
executives and other key employees. On February 1, 1997, x shares remained
available for future grants to be made pursuant to the plan. Since the adoption
of the plan in 1995, the Company's compensation practices have been modified to
make equity ownership of the Company a larger component of compensation, and
therefore, the Board of Directors believes the number of shares presently
available for the grant of awards under the plan will be insufficient for the
number of awards to be made by the Company. The Board therefore adopted on
November 3, 1996, subject to the approval of the stockholders, an amendment to
the plan which would increase the number of shares subject to issuance under the
plan to 1,850,000. If Proposal 2 - Proposal to Approve the Restructuring, is
approved, and the Restructuring is effectuated, any future awards made under the
plan will be made in shares of HSB Group Common Stock.
The full text of the proposed plan amendment is annexed as Appendix E to
this Prospectus and Proxy statement.
The closing price of Company Common Stock on February 13, 1997 as
reported in The Wall Street Journal was $46.375.
Material Features of the Plan
General
Executive and middle management employees of the Company or its
subsidiaries are eligible to participate in the plan. The Board estimates that
approximately two hundred persons participate in the plan. Participants are
recommended by their management. Under the plan, The Human Resources Committee
of the Board of Directors, as plan administrator (the "Committee"), is
authorized to grant incentive and nonstatutory stock options, stock appreciation
rights in tandem with such options and restricted stock awards to eligible
employees.
As approved by stockholders at the 1995 Annual Meeting, a maximum of
850,000 shares of Company Common Stock has been reserved for issuance under the
plan. (If the proposed amendment is approved, the maximum number of shares
reserved for issuance will be 1,850,000.) No single participant may be granted
awards pursuant to the plan in excess of 100,000 shares of Company Common Stock
in any calendar year. The plan permits adjustments, in the Board of Directors'
discretion, in the number of shares of Company Common Stock authorized to be
issued in the event of stock splits, stock dividends and other changes in the
capitalization of the Company. The plan provides that preferred stock may be
issued in lieu of common stock. The Company has no present intention to issue
preferred stock pursuant to the plan. Shares of Company Common Stock issued
under the plan may be newly issued or shares previously repurchased by the
Company.
The Committee is responsible for determining the type and particular
provisions of awards for eligible employees and is responsible for interpreting
the plan and for issuing such rules as are necessary for its administration. The
Committee is composed of directors who are ineligible to participate in the
plan.
Under the terms of the plan, the Board of Directors is permitted to
amend, suspend or discontinue the plan except that no amendment may be made
without the approval of stockholders that increases the number of shares
reserved for options and restricted stock awards under the plan, changes the
class of persons eligible to participate, permits an option grant at a price
less than fair market value or extends the term of the plan or the term during
which an option may be granted or exercised.
Option Grants
The plan provides that the option price of both incentive and
nonstatutory stock option grants will not be less than the fair market value of
Company Common Stock on the date an option is granted. The fair market value is
defined as the average of the high and low prices per share of Company Common
Stock as quoted by the New York Stock Exchange Composite Transaction Reporting
System.
The specific terms of an option grant to a plan participant are determined
by the Committee. However, in no event may an option be exercised within one
year of, or beyond ten years from, the date of the grant. In addition, no option
or associated stock appreciation right may be exercised more than two years
after termination of the participant's employment, if such termination occurred
following the death, disability or retirement of the participant or a change in
control of the Company, as such terms are defined in the plan. If termination of
employment occurs for any other reason (other than termination for cause) no
option or associated stock appreciation right may be exercised more than three
months following the date of termination. However, if the participant dies
within this three-month period, the participant's beneficiary will be permitted
to exercise the option or stock appreciation right within one year of the date
of termination of employment. No option may be exercised by a participant or a
beneficiary beyond the term specified in the option grant. Options and stock
appreciation rights will generally be nontransferable during the lifetime of the
participant, except that the Committee may, in its discretion, grant
nonqualified stock options that may be transferred pursuant to a qualified
domestic relations order, or to an immediate family member or a trust for the
benefit of an immediate family member. Payment for the shares as to which an
option is exercised will be made in cash, or if permitted by the Committee, in
shares of Company Common Stock that have been held by the participant for at
least six months, or a combination of cash and stock. The Committee may permit
participants to satisfy, in whole or in part, any federal, state, or local tax
requirements due upon exercise of a stock option by delivering to the Company
already-owned Company Common Stock or by directing the Company to retain stock
otherwise issuable upon such exercise to the participant, having a fair market
value equal to the amount of the tax.
Under the terms of the plan, an option grant may, in the discretion of
the Committee, also include a stock appreciation right which will entitle a
participant to surrender the option, in whole or in part, and receive in
exchange an amount equal to the excess of the fair market value, on the date of
surrender, of the shares covered by the option over the option price of such
shares. This excess may be paid in shares of Company Common Stock, cash or a
combination of both, in the discretion of the Committee.
Restricted Stock Awards
A restricted stock award is an award of common shares that may not be
sold, assigned, transferred, or otherwise encumbered, except by will or the laws
of descent and distribution, for a period (the "restricted period") of five
years, or such shorter period as the Committee shall determine, from the date on
which the award is granted. The Committee may provide that the foregoing
restrictions shall lapse with respect to specified percentages of the awarded
shares on successive anniversaries of the date of the award. In addition, the
Committee has the authority to cancel all or any portion of any outstanding
restrictions prior to the expiration of the restricted period.
During the restricted period, the participant is the registered owner
of the shares and is entitled to receive dividends with respect to such stock
and to vote such shares, but participants do not receive stock certificates. If
during the restricted period the participant's continuous employment terminates
for any reason (other than by reason of death, disability, retirement or
pursuant to a change in control as such terms are defined under the plan), any
shares remaining subject to restrictions are forfeited by the participant and
transferred at no cost to the Company, provided however, that as noted above,
the Committee has the authority to cancel any or all outstanding restrictions
prior to the end of the restricted period, including cancellation of
restrictions in connection with certain types of termination of employment. When
the restricted period ends, the restrictions on shares lapse and stock
certificates are delivered to the participant. The Committee may permit
participants to satisfy, in whole or in part, any federal, state, or local tax
requirements due upon the lapse of such restrictions by delivering already-owned
Company Common Stock or by directing the Company to retain Company Common Stock
otherwise issuable to the participant upon the lapse of such restrictions,
having a fair market value equal to the amount of the tax.
Federal Income Tax Consequences
A participant is not taxed upon the grant of a Nonstatutory Stock
Option (NSO). Upon the exercise of an NSO, the participant is taxed at ordinary
income rates on the difference between the fair market value of the shares on
the date of exercise and the option price. The Company is entitled to a tax
deduction equal in amount to ordinary income recognized by the participant. The
participant's basis in the Company Common Stock acquired upon exercise of an NSO
is equal to the option price plus the amount of ordinary income recognized.
A participant does not recognize any income for Federal income tax
purposes upon either the grant or timely exercise of an Incentive Stock Option
(ISO). However, the spread at exercise will constitute an item includible in
alternative minimum taxable income, and thereby may subject the optionee to the
alternative minimum tax.
If the participant holds the shares purchased through the exercise of
the ISO for two years from the date of the grant of the option and one year from
the exercise date, the participant will be eligible for long-term capital gains
treatment on the sale of the shares equal to the difference between the amount
realized on the sale and the option price. The Company is not entitled to a tax
deduction in this event. If the participant disposes of the shares within two
years from the date of the grant or within one year from the exercise date (a
"disqualifying disposition"), the participant will be subject to ordinary income
tax treatment on the difference between the option price and the lesser of the
fair market value of the shares on the date of exercise or the amount realized
on disposition. The Company will be entitled to a tax deduction in the same
amount as the ordinary income recognized by the participant.
The Committee may, in its discretion permit a participant to deliver
previously acquired shares in payment for the option price of an NSO or ISO. If
the participant uses shares of Company Common Stock to pay the option price of
an NSO, gain or loss is not recognized on the exchange to the extent that the
number of shares received does not exceed the number turned in as payment. The
shares received in the exchange have the same basis and holding periods as the
shares used for payment. Any additional shares received upon the exercise of an
NSO have a tax basis equal to the amount of ordinary income realized by the
participant and holding period beginning on the date of exercise.
If the participant uses shares of Company Common Stock to pay the
option price of an ISO, gain or loss is not generally recognized on the
exchange. The equivalent number of shares received in exchange for the shares
turned in have the basis and holding period of the shares turned in for capital
gain or loss purposes. Any additional shares received have a zero basis with a
holding period beginning on the exercise date. However, if Company Common Stock
acquired upon a prior exercise of an ISO is transferred in payment for
subsequent exercise of an ISO or NSO, before the requisite holding periods for
the surrendered shares have been met, the optionee will recognize ordinary
income on the gain resulting from the disposition of such shares. "Gain" for
this purpose is defined as the lesser of 1) the difference between the fair
market value of the stock on the date of exercise of the first option and the
option price of the first option, or 2) the fair market value of the stock on
the date of exercise of the second option and the option price of the first
option.
Upon the exercise of a Stock Appreciation Right (SAR) a participant
will be subject to ordinary income tax treatment on the cash plus the fair
market value of shares of Company Common Stock received. The Company will be
entitled to a tax deduction in the same amount as the ordinary income realized
by the participant. A participant's basis in any stock acquired upon the
exercise of an SAR is equal to the amount of ordinary income recognized
excluding any cash received.
In the case of a restricted stock award, a participant is not taxed
upon the grant of any such award, but rather, the participant realizes ordinary
income in an amount equal to the fair market value of Company Common Stock at
the time the shares are no longer subject to a substantial risk of forfeiture
(as defined in the Internal Revenue Code). The Company is entitled to a
deduction at the time and in the amount that the participant realizes ordinary
income, unless such amount exceeds the limit on compensation payable to
executives pursuant to Section 162(m) of the Code. A participant may elect under
Section 83(b) of the Internal Revenue Code (not later than 30 days after
acquiring such restricted shares) to realize ordinary income at the time the
restricted shares are awarded in an amount equal to their fair market value at
that time, notwithstanding the fact that such shares are subject to restrictions
and a substantial risk of forfeiture. If such an election is made, no additional
taxable income will be recognized by such participant at the time the
restrictions lapse. However, if shares in respect of which such election was
made are later forfeited, no tax deduction is allowable to the participant for
the forfeited shares, and the Company will be deemed to realize ordinary income
equal to the amount of the deduction allowed to the Company at the time of the
election in respect of such forfeited shares.
It cannot be determined at this time what benefits or amounts, if any,
will be received by or allocated to any person or group of persons under the
plan if the amendment is adopted or what benefits or amounts would have been
received by or allocated to any person or group of persons for the last fiscal
year if the amendment had been in effect.
Stockholder Vote Required for Approval
Approval of Proposal 3 requires that the number of votes cast in favor
of the proposal exceed the number of votes cast opposing the proposal. The Board
of Directors unanimously recommends a vote FOR Proposal 3.
PROPOSAL 4
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors recommends that the firm of Coopers & Lybrand
L.L.P. be appointed as independent public accountants for the Company for the
year ending December 31, 1997. Coopers & Lybrand L.L.P. has served as the
Company's independent public accountants since 1965.
Representatives of Coopers & Lybrand L.L.P. will be present at the
meeting to make a statement if they wish to do so, and will be available to
respond to appropriate questions raised by stockholders.
Unless otherwise directed, the shares represented by the enclosed proxy
card will be voted for the appointment of Coopers & Lybrand L.L.P. as
independent public accountants for 1997. Approval of Proposal 4 requires that
the number of votes cast in favor of the proposal exceed the number of votes
cast opposing the proposal.
The Board of Directors unanimously recommends a vote FOR Proposal 4.
DEADLINE FOR STOCKHOLDER PROPOSALS
As currently contemplated, the Restructuring, if approved, will be
effectuated in the second quarter of 1997. Therefore, it is expected that HSB
Group will be conducting the 1998 Annual Meeting of Stockholders. Stockholders
who wish to submit written proposals for possible inclusion in the proxy
statement prepared in connection with such meeting must make certain that they
are received no later than October 30, 1997. Proposals should be sent to the
Corporate Secretary, HSB Group, Inc., One State Street, P.O. Box 5024, Hartford,
Connecticut 06102-5024.
OTHER BUSINESS TO COME BEFORE THE MEETING
The management does not know of any matters to be presented for
consideration at the meeting other than the matters described in the Notice of
Annual Meeting; but if other matters are properly presented, it is the intention
of the persons named in the accompanying proxy to vote on such matters in
accordance with their judgment. Stockholders desiring to nominate persons for
election as directors or to bring other business before stockholders at the
meeting must provide the appropriate written notice required by the Company's
Bylaws, copies of which are available upon request to the Corporate Secretary of
the Company.
ADDITIONAL INFORMATION AVAILABLE
THE COMPANY FILES AN ANNUAL REPORT ON FORM 10-K WITH THE SECURITIES AND
EXCHANGE COMMISSION. STOCKHOLDERS MAY RECEIVE A COPY OF THE 10-K BY SENDING A
WRITTEN REQUEST TO THE OFFICE OF THE TREASURER, THE HARTFORD STEAM BOILER
INSPECTION AND INSURANCE COMPANY, ONE STATE STREET, P.O. BOX 5024, HARTFORD,
CONNECTICUT 06102-5024.
By Order of the Board of Directors,
R. K. PRICE
Corporate Secretary
Printed on recycled paper
<PAGE>
Appendix A
AGREEMENT AND PLAN OF SHARE EXCHANGE
OF
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY,
a Connecticut corporation
AND
HSB GROUP, INC.
a Connecticut corporation
This Agreement and Plan of Share Exchange (the "Agreement" or "Plan of
Exchange") is dated and executed as of the ______day of _______, 1997, by and
between THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY, a
Connecticut corporation (the "Insurance Company"), and HSB GROUP, INC. a
Connecticut corporation (the "Holding Company").
1. The name of the Insurance Company is The Hartford Steam Boiler
Inspection and Insurance Company, a Connecticut corporation, and
the name of the Holding Company is HSB Group, Inc., a Connecticut
Corporation.
2. The designation and number of authorized and outstanding shares
of the Holding Company are: x shares of common stock, no par
value (the "Holding Company Common Shares"), each of which is
entitled to one vote and x shares of which are issued and
outstanding. Immediately prior to the Effective Time (as
hereinafter defined), the designation and number of authorized
shares of the Holding Company will be: (a) 50,000,000 Holding
Company Common Shares, each of which will have attached thereto a
Right (as defined below); and (b) 500,000 shares of preferred
stock, no par value (the "Holding Company Preferred Shares"), of
which (i) 250,000 will be designated as Series A Junior
Participating Preferred Shares (the "Holding Company Junior
Preferred Shares"), each of which will be entitled to 200 votes,
voting together with the Holding Company Common Shares, and (ii)
2,000 will be designated as Series B Convertible Preferred Shares
(the "Holding Company Convertible Shares"), each of which will be
entitled to 199 votes, voting together with the Holding Company
Common Shares, and with respect to certain matters voting as a
separate class.
The designation and number of authorized and outstanding shares
of the Insurance Company are: (a) 50,000,000 shares of common
stock, no par value (the "Insurance Company Common Shares"), each
of which is entitled to one vote, 20,041,707 shares of which
were, as of February 13, 1997, issued and outstanding and
29,958,293 shares of which were, as of February 13, 1997, held as
authorized and unissued shares of the Insurance Company, and
which in each case have attached thereto a Right; and (b) 500,000
authorized preferred shares, no par value (the "Insurance Company
Preferred Shares"), of which (i) 250,000 are designated Series A
Junior Participating Preferred Shares (the "Insurance Company
Junior Preferred Shares"),each of which is entitled to 200 votes,
voting together with the Insurance Company Common Shares, and
none of which is outstanding, and (ii) 2,000 shares are
designated as Series B Convertible Preferred Shares (the
"Insurance Company Convertible Preferred Shares"), each of which
is entitled to 199 votes, voting together with the Insurance
Company Common Shares, and with respect to certain matters voting
as a separate class, and all of which were, as of February 13,
1997, issued and outstanding.
For adoption and approval, this Plan of Exchange shall require
the approval of two-thirds of all outstanding Insurance Company
Common Shares and Convertible Preferred Stock voting together as
a single class.
3. Upon the time of filing of a Certificate of Exchange in
connection with the share exchange contemplated hereby (the
"Share Exchange") with the Secretary of State of the State of
Connecticut (the "Effective Time"):
(a) each outstanding Insurance Company Common Share (and
associated Right) and each outstanding Insurance Company
Convertible Preferred Share shall by operation of law and
without further action be exchanged for one Holding Company
Common Share (and associated Right) and one Holding Company
Convertible Preferred Share, respectively, subject to
dissenting stockholders' rights under Sections 33-855 to
33-872, inclusive of the Connecticut Business Corporation
Act (the "CBCA"); and
(b) each Holding Company Common Share outstanding
immediately prior to the Effective Time shall be canceled
and shall be restored to the status of an authorized but
unissued Holding Company Common Share;
so that, immediately after the Effective Time, all of the
outstanding Insurance Company Common Shares and Insurance Company
Convertible Shares will be held by the Holding Company, and all
of the outstanding Holding Company Common Shares and Holding
Company Convertible Preferred Shares will be held by the owners
of the Insurance Company Common Shares and Insurance Company
Convertible Preferred Shares, respectively, that were outstanding
immediately prior to the Effective Time.
4. By the Holding Company's having executed this Agreement and by
the subsequent consummation of the transactions enumerated
herein, the Holding Company shall be deemed to have approved the
following plans of the Insurance Company (collectively, the
"Plans"): the 1985 and 1995 Stock Option Plans; the Retirement
Plan; the Excess Retirement Plan; the Thrift Incentive Plan; the
Leveraged Employee Stock Ownership Plan; the Long-Term and
Short-Term Incentive Plans; the Directors Stock and Deferred
Compensation Plan; the Service Award Plan; employment agreements;
and all other employee benefit plans or programs of the Insurance
Company; and, by virtue of the Share Exchange and without any
action on the part of the participants in the Plans, each
Insurance Company Common Share and each option, unit or right
then issued and outstanding under the Plans shall be converted
into an equivalent number of shares, options, units or rights,
respectively, of Holding Company Common Shares, at the same per
share price, if applicable, and upon the same terms and subject
to the same conditions as applicable immediately prior to the
Effective Time to the relevant share, option, unit or right, and
any restricted shares awarded under such Plans as to which the
restrictions have not lapsed as of the Effective Time of the
Share Exchange, will be converted into the same number of Holding
Company Common Shares carrying identical restrictions.
To the extent deemed necessary or appropriate, Holding Company
and Insurance Company shall make appropriate amendments to the
Plans to reflect the adoption thereof as the plans of Holding
Company without adverse effect upon any of the options and shares
outstanding under the Plans.
5. At the Effective Time, the Holding Company will assume the
Insurance Company's rights and obligations pursuant to the Rights
Agreement, dated as of November 28, 1988 between the Insurance
Company and The First National Bank of Boston, as Rights Agent
(the "Rights Agreement"), and by virtue of the Share Exchange,
and without any action on the part of the holder thereof, each
right (a "Right") to purchase Insurance Company Junior Preferred
Shares and to otherwise exercise options, rights and privileges,
issued pursuant to the Rights Agreement shall be converted into
and become a right to purchase an equivalent number or amount of
Holding Company Junior Preferred Shares, at the same exercise
price, and upon the same terms and subject to the same
conditions, as applicable immediately prior to the Effective Time
and to otherwise exercise options, rights and other privileges
pursuant to the Rights Agreement. The Holding Company will
reserve, for purposes of issuance pursuant to the Rights
Agreement, a number of Holding Company Junior Preferred Shares
equivalent to the number of Insurance Company Junior Preferred
Shares reserved by the Insurance Company for such purposes
immediately prior to the Effective Time.
6. At the Effective Time, each certificate evidencing ownership of
Insurance Company Common Shares (and associated Rights) and
Insurance Company Convertible Preferred Shares outstanding at the
Effective Time shall automatically, and without any action by the
holder thereof, be deemed to evidence, an equivalent number of
Holding Company Common Shares (and associated Rights) or Holding
Company Convertible Preferred Shares, respectively, subject to
dissenting stockholders' rights under Sections 33-855 to 33-872,
inclusive, of the CBCA.
7. At the Effective Time, the board of directors and executive
officers of the Holding Company shall become the board of
directors and executive officers of the Holding Company. The
executive officers of the Holding Company shall be identified as
follows: Gordon W. Kreh, President and Chief Executive Officer;
John J. Kelley, Senior Vice President; Michael L. Downs, Senior
Vice President; Saul L. Basch, Senior Vice President, Treasurer
and Chief Financial Officer; William A. Kerr, Senior Vice
President; Robert C. Walker, Senior Vice President and General
Counsel; R. Kevin Price, Senior Vice President and Corporate
Secretary; William Stockdale, Senior Vice President.
8. Immediately prior to, and at, the Effective Time, the articles of
incorporation of the Holding Company shall be as set forth in
Exhibit A to this Agreement.
9. The Plan of Exchange shall be conditioned upon:
(a) receipt of the requisite vote of stockholders of the
Insurance Company pursuant to Section 33-817 of the CBCA;
(b) approval or exemption of the insurance regulatory
authorities in Connecticut, Texas, Michigan and the United
Kingdom, or any other consents, approvals or exemptions
necessary or appropriate for the consummation of the Share
Exchange, in form and substance satisfactory to the
Insurance Company and the Holding Company;
(c) the effectiveness of a Registration Statement under the
Securities Act of 1933 relating to the common stock of
Holding Company to be issued or reserved for issuance in
connection with the Share Exchange;
(d) authorization for listing, subject to official notice of
issuance, of the Holding Company Common Shares (and
associated Rights) on the New York Stock Exchange, Inc.;
(e) receipt of an opinion of Skadden, Arps, Slate, Meagher &
Flom LLP, tax counsel for the Insurance Company, regarding
certain federal income tax consequences of the Share
Exchange;
(f) receipt of an opinion of counsel as to the legality of
the Holding Company Common Shares and Holding Company
Convertible Preferred Shares issuable in connection with the
Share Exchange; and
(g) the absence of any injunction prohibiting or restricting
in any manner the Share Exchange or the operation of the
Holding Company, the Insurance Company or any of their
subsidiaries after consummation of such Share Exchange.
10. At any time before or after the adoption of this Agreement by the
stockholders of the Insurance Company, this Agreement may be
amended or modified or certain of its conditions waived by the
boards of directors of the Holding Company and the Insurance
Company or authorized committees of such boards; provided that no
such amendment, modification or waiver may affect the rights of
any stockholder of the Insurance Company in any manner that is
materially adverse to such stockholder in the judgment of the
board of directors of the Insurance Company. The Plan of Exchange
may be abandoned by either the Insurance Company or the Holding
Company, notwithstanding the approval of the Plan of Exchange by
the stockholders of the Insurance Company, at any time prior to
the Effective Time, if for any reason the board of directors of
either of such corporations determines that it is inadvisable to
proceed with the Plan of Exchange, including without limitation,
giving consideration to the number of shares for which dissenting
stockholders' rights pursuant to Sections 33-855 to 33-872,
inclusive, of the CBCA have been exercised and the cost to the
Insurance Company thereof.
11. The Insurance Company and the Holding Company, respectively,
shall take all such action as may be necessary or appropriate in
order to effectuate the Share Exchange and the other transactions
contemplated by this Agreement. If, at any time after the
Effective Time, any further action is necessary or desirable to
carry out the purposes of this Agreement, the officers and
directors of each of the Holding Company and the Insurance
Company, as of the Effective Time, shall take such further
action.
THE HARTFORD STEAM BOILER
INSPECTION AND INSURANCE COMPANY
a Connecticut corporation
By: ______________________________
Its:
HSB GROUP, INC.
a Connecticut corporation
By: ______________________________
Its: ______________________________
<PAGE>
APPENDIX B
CONNECTICUT GENERAL STATUTES ANNOTATED
TITLE 33. CORPORATIONS
CHAPTER 601. BUSINESS CORPORATIONS
PART XIII. DISSENTERS' RIGHTS
(A) RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
Section 33-855. Definitions
As used in sections 33-855 to 33-872, inclusive:
(1) "Corporation" means the issuer of the shares held by a dissenter before the
corporate action or the surviving or acquiring corporation by merger or share
exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from corporate
action under section 33-856 and who exercises that right when and in the manner
required by sections 33-860 to 33-868, inclusive.
(3) "Fair value", with respect to a dissenter's shares, means the value of the
shares immediately before the effectuation of the corporate action to which the
dissenter objects, excluding any appreciation or depreciation in anticipation of
the corporate action.
(4) "Interest" means interest from the effective date of the corporate action
until the date of payment, at the average rate currently paid by the corporation
on its principal bank loans or, if none, at a rate that is fair and equitable
under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are registered
in the records of a corporation or the beneficial owner of shares to the extent
of the rights granted by a nominee certificate on file with a corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial shareholder.
Section 33-856. Right to dissent
(a) A shareholder is entitled to dissent from, and obtain payment of the fair
value of his shares in the event of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a party (A) if
shareholder approval is required for the merger by section 33-817 or the
certificate of incorporation and the shareholder is entitled to vote on the
merger or (B) if the corporation is a subsidiary that is merged with its parent
under section 33-818;
(2) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan;
(3) Consummation of a sale or exchange of all, or substantially all, of the
property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders within one
year after the date of sale;
(4) An amendment of the certificate of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it: (A)
Alters or abolishes a preferential right of the shares; (B) creates, alters or
abolishes a right in respect of redemption, including a provision respecting a
sinking fund for the redemption or repurchase, of the shares; (C) alters or
abolishes a preemptive right of the holder of the shares to acquire shares or
other securities; (D) excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights; or (E)
reduces the number of shares owned by the shareholder to a fraction of a share
if the fractional share so created is to be acquired for cash under section 33-
668; or
(5) Any corporate action taken pursuant to a shareholder vote to the extent the
certificate of incorporation, bylaws or a resolution of the board of directors
provides that voting or nonvoting shareholders are entitled to dissent and
obtain payment for their shares.
(b) Where the right to be paid the value of shares is made available to a
shareholder by this section, such remedy shall be his exclusive remedy as holder
of such shares against the corporate transactions described in this section,
whether or not he proceeds as provided in sections 33-855 to 33-872, inclusive.
Section 33-857. Dissent by nominees and beneficial owners
(a) A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares held on
his behalf only if: (1) He submits to the corporation the record shareholder's
written consent to the dissent not later than the time the beneficial
shareholder asserts dissenters' rights; and (2) he does so with respect to all
shares of which he is the beneficial shareholder or over which he has power to
direct the vote.
Sections 33-858, 33-859. Reserved for future use
(B) PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
Section 33-860. Notice of dissenters' rights
(a) If proposed corporate action creating dissenters' rights under section 33-
856 is submitted to a vote at a shareholders' meeting, the meeting notice shall
state that shareholders are or may be entitled to assert dissenters' rights
under sections 33-855 to 33-872, inclusive, and be accompanied by a copy of said
sections.
(b) If corporate action creating dissenters' rights under section 33-856 is
taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in section 33-862.
Section 33-861. Notice of intent to demand payment
(a) If proposed corporate action creating dissenters' rights under section 33-
856 is submitted to a vote at a shareholders' meeting, a shareholder who wishes
to assert dissenters' rights (1) shall deliver to the corporation before the
vote is taken written notice of his intent to demand payment for his shares if
the proposed action is effectuated and (2) shall not vote his shares in favor of
the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a) of
this section is not entitled to payment for his shares under sections 33-855 to
33-872, inclusive.
Section 33-862. Dissenters' notice
(a) If proposed corporate action creating dissenters' rights under section 33-
856 is authorized at a shareholders' meeting, the corporation shall deliver a
written dissenters' notice to all shareholders who satisfied the requirements of
section 33-861.
(b) The dissenters' notice shall be sent no later than ten days after the
corporate action was taken and shall:
(1) State where the payment demand must be sent and where and when certificates
for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
(4) Set a date by which the corporation must receive the payment demand, which
date may not be fewer than thirty nor more than sixty days after the date the
subsection (a) of this section notice is delivered; and
(5) Be accompanied by a copy of sections 33-855 to 33-872, inclusive.
Section 33-863. Duty to demand payment
(a) A shareholder sent a dissenters' notice described in section 33-862 must
demand payment, certify whether he acquired beneficial ownership of the shares
before the date required to be set forth in the dissenters' notice pursuant to
subdivision (3) of subsection (b) of said section and deposit his certificates
in accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) of this section retains all other rights of a shareholder
until these rights are cancelled or modified by the taking of the proposed
corporate action.
(c) A shareholder who does not demand payment or deposit his share certificates
where required, each by the date set in the dissenters' notice, is not entitled
to payment for his shares under sections 33-855 to 33-872, inclusive.
Section 33-864. Share restrictions
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under section 33-866.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are
cancelled or modified by the taking of the proposed corporate action.
Section 33-865. Payment
(a) Except as provided in section 33-867, as soon as the proposed corporate
action is taken, or upon receipt of a payment demand, the corporation shall pay
each dissenter who complied with section 33-863 the amount the corporation
estimates to be the fair value of his shares, plus accrued interest.
(b) The payment shall be accompanied by: (1) The corporation's balance sheet as
of the end of a fiscal year ending not more than sixteen months before the date
of payment, an income statement for that year, a statement of changes in
shareholders' equity for that year and the latest available interim financial
statements, if any; (2) a statement of the corporation's estimate of the fair
value of the shares; (3) an explanation of how the interest was calculated; (4)
a statement of the dissenter's right to demand payment under section 33- 860;
and (5) a copy of sections 33-855 to 33-872, inclusive.
Section 33-866. Failure to take action
(a) If the corporation does not take the proposed action within sixty days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 33-862 and repeat the payment demand procedure.
Section 33-867. After-acquired shares
(a) A corporation may elect to withhold payment required by section 33-865 from
a dissenter unless he was the beneficial owner of the shares before the date set
forth in the dissenters' notice as the date of the first announcement to news
media or to shareholders of the terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under subsection
(a) of this section, after taking the proposed corporate action, it shall
estimate the fair value of the shares, plus accrued interest, and shall pay this
amount to each dissenter who agrees to accept it in full satisfaction of his
demand. The corporation shall send with its offer a statement of its estimate of
the fair value of the shares, an explanation of how the interest was calculated
and a statement of the dissenter's right to demand payment under section 33-868.
Section 33-868. Procedure if shareholder dissatisfied with payment or offer
(a) A dissenter may notify the corporation in writing of his own estimate of
the fair value of his shares and amount of interest due, and demand payment of
his estimate, less any payment under section 33-865, or reject the corporation's
offer under section 33-867 and demand payment of the fair value of his shares
and interest due, if:
(1) The dissenter believes that the amount paid under section 33-865 or offered
under section 33-867 is less than the fair value of his shares or that the
interest due is incorrectly calculated;
(2) The corporation fails to make payment under section 33-865 within sixty
days after the date set for demanding payment; or
(3) The corporation, having failed to take the proposed action, does not return
the deposited certificates or release the transfer restrictions imposed on
uncertificated shares within sixty days after the date set for demanding
payment.
(b) A dissenter waives his right to demand payment under this section unless he
notifies the corporation of his demand in writing under subsection (a) of this
section within thirty days after the corporation made or offered payment for his
shares.
Sections 33-869, 33-870. Reserved for future use
(C) JUDICIAL APPRAISAL OF SHARES
Section 33-871. Court action
(a) If a demand for payment under section 33-868 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the sixty-day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
(b) The corporation shall commence the proceeding in the superior court for the
judicial district where a corporation's principal office or, if none in this
state, its registered office is located. If the corporation is a foreign
corporation without a registered office in this state, it shall commence the
proceeding in the superior court for the judicial district where the registered
office of the domestic corporation merged with or whose shares were acquired by
the foreign corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of this
state, whose demands remain unsettled parties to the proceeding as in an action
against their shares and all parties must be served with a copy of the petition.
Nonresidents may be served by registered or certified mail or by publication as
provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) of this section is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend decision on
the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The dissenters are entitled to
the same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment (1)
for the amount, if any, by which the court finds the fair value of his shares,
plus interest, exceeds the amount paid by the corporation, or (2) for the fair
value, plus accrued interest, of his after-acquired shares for which the
corporation elected to withhold payment under section 33-867.
Section 33-872. Court costs and counsel fees
(a) The court in an appraisal proceeding commenced under section 33-871 shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court. The court shall assess the costs
against the corporation, except that the court may assess costs against all or
some of the dissenters, in amounts the court finds equitable, to the extent the
court finds the dissenters acted arbitrarily, vexatiously or not in good faith
in demanding payment under section 33-868.
(b) The court may also assess the fees and expenses of counsel and experts for
the respective parties, in amounts the court finds equitable: (1) Against the
corporation and in favor of any or all dissenters if the court finds the
corporation did not substantially comply with the requirements of sections 33-
860 to 33-868, inclusive; or (2) against either the corporation or a dissenter,
in favor of any other party, if the court finds that the party against whom the
fees and expenses are assessed acted arbitrarily, vexatiously or not in good
faith with respect to the rights provided by sections 33-855 to 33-872,
inclusive.
(c) If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
APPENDIX D
BYLAWS
of
HSB GROUP, INC.
ARTICLE I.
SHAREHOLDERS' MEETINGS
All meetings of the Shareholders shall be held in the City of Hartford
or such other place within Connecticut as the Board of Directors may appoint.
The Annual Meeting shall be held on the 3rd Tuesday of April in each year or on
some other day within two (2) months thereafter as fixed by the Board of
Directors. Special meetings of the Shareholders may be held at such time as
fixed by the Board of Directors. Notice of every meeting of the Shareholders and
of the time and place thereof shall be given as required by law. At each meeting
of the Shareholders the President or Chairman of the Board shall preside and act
as Chairman. The Chairman may appoint a Committee on Proxies to receive, count
and report the votes cast in person at such meeting and the votes represented by
proxies. The holders of a majority of the shares of the issued and outstanding
stock entitled to vote at a meeting, present either in person or by proxy, shall
constitute a quorum for the transaction of business at such meeting of the
Shareholders. If a quorum is not present at such meeting, the Shareholders
present in person or by proxy may adjourn to such future time as shall be agreed
upon by them, and notice of such adjournment shall be given to Shareholders not
present or represented at the meeting.
Regulations for the conduct of a meeting of Shareholders may be
prescribed by the Chairman or at the Chairman's option be adopted by the
Shareholders present by voice vote or by ballot.
At any meeting of the Shareholders, only such business may be conducted
as shall have been properly brought before the meeting and as shall have been
determined to be lawful and appropriate for consideration by Shareholders at the
meeting. To be properly brought before a meeting business must be (a) specified
in the notice of meeting, (b) otherwise properly brought before the meeting by
or at the direction of the Board of Directors or the Chairman of the meeting, or
(c) otherwise properly brought before the meeting by a Shareholder. For business
to be properly brought before a meeting by a Shareholder pursuant to clause (c)
above, the Shareholder must have given timely notice thereof in proper written
form to the Corporate Secretary. To be timely, a Shareholder's notice to the
Corporate Secretary must be delivered to or mailed and received by the Corporate
Secretary of the Company not less than sixty nor more than ninety days prior to
the anniversary of the date on which the immediately preceding Annual Meeting of
the Shareholders was convened; provided, however, that in the event that the
Annual Meeting is called for a date that is not within thirty days before or
after such anniversary date, notice by the Shareholder in order to be timely
must be received not later than the close of business on the tenth day following
the day on which such notice of the date of the Annual Meeting was mailed or
such public disclosure of the date of the Annual Meeting was made, whichever
first occurs. Such Shareholder's notice shall set forth as to each matter the
Shareholder proposes to bring before the meeting (a) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the meeting, (b) the name and record address of such
Shareholder, (c) the class and number of shares of capital stock of the Company
which are beneficially held by such Shareholder and (d) any material interest of
such Shareholder in such business. Notwithstanding anything in these Bylaws to
the contrary, no business shall be conducted at a meeting except in accordance
with the procedures set forth herein. The Chairman of the meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the procedures set forth
herein, or that business was not lawful or appropriate for consideration by
Shareholders at the meeting, and if the Chairman of the meeting should so
determine, the Chairman of the meeting shall so declare to the meeting and any
such business not properly brought before the meeting shall not be transacted at
that meeting.
Nominations of persons for election to the Board of Directors of the
Company may be made by the Board of Directors or by any Shareholder entitled to
vote for the election of Directors in compliance with the notice procedures set
forth herein. Any Shareholder entitled to vote for the election of Directors at
a meeting may nominate persons for the election of Directors only if timely
written notice of such Shareholder's intent is given to the Corporate Secretary.
To be timely, a Shareholder's notice to the Corporate Secretary must be
delivered to or mailed and received by the Corporate Secretary of the Company
not less than sixty days nor more than ninety days prior to the anniversary of
the date on which the immediately preceding Annual Meeting of the Shareholders
was convened; provided, however, that in the event that the Annual Meeting is
called for a date that is not within thirty days before or after such
anniversary date, notice by the Shareholder in order to be timely must be
received not later than the close of business on the tenth day following the day
on which such notice of the date of the Annual Meeting was mailed or such public
disclosure of the date of the Annual Meeting was made, whichever first occurs.
Such Shareholder's notice shall set forth (a) as to each person whom the
Shareholder proposes to nominate for election or re-election as a Director, (i)
the name, age, business address and residence address of such person, (ii) the
principal occupation or employment of such person, (iii) the class and number of
shares of capital stock of the Company which are beneficially owned by such
person and (iv) any other information relating to such person that is required
to be disclosed in solicitations of proxies for election of Directors, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (including, without limitation such person's
written consent to being named in the proxy statement as a nominee and to
serving as a Director if elected) and (b) as to the Shareholder giving the
notice, (i) the name and address, as they appear on the Company's books, of such
Shareholder and, (ii) the class and number of shares of capital stock of the
Company which are beneficially owned by such Shareholder. If the Chairman of the
meeting determines that a nomination was not in accordance with the foregoing
procedures, such nomination shall be void.
ARTICLE II.
DIRECTORS
The Board of Directors shall consist of the number of directors fixed
from time to time by resolution adopted by the affirmative vote of a majority of
the entire Board of Directors. No person shall serve as Director beyond the date
of the first Annual Meeting of Shareholders held subsequent to the Director's
seventieth birthday.
Regular and special meetings of the Board of Directors shall be held as
determined by the Directors.
At any meetings of the Board of Directors, a majority of the Directors
then in office, but not less than one third of the of directorships fixed in
accordance with this Article, shall constitute a quorum for the transaction of
business. Unless otherwise prescribed herein or in the Articles of Incorporation
of the Company, action of the Board of Directors shall be by majority vote of
the Directors present. The compensation of Directors shall be determined by the
Board of Directors.
ARTICLE III.
COMMITTEES
The Board of Directors may by resolution designate two or more
Directors to constitute an executive committee or other committees, which
committees shall have and may exercise all such authority of the Board of
Directors as shall be provided in such resolution, subject to such limitations
as are provided under Section 33-753 of the Connecticut General Statutes, as it
may be amended from time to time.
The Board of Directors may by resolution designate one or more
Directors as alternate members of such committees who may replace any absent
member at any meeting of such committees upon such notice and in such manner as
may be provided in the resolution designating such alternate members.
ARTICLE IV.
OFFICERS
There shall be a President and there may be a Chairman of the Board,
each elected by the Board of Directors from their own number. The President
shall be the chief executive officer and responsible under the direction of the
Board of Directors for the supervision, management and active control of the
affairs and properties of the Company.
The Board of Directors may also elect a Corporate Secretary, a
Treasurer, one or more Executive Vice Presidents and Senior Vice Presidents.
The President shall appoint such other Officers as may be required for
the prompt and orderly transaction of the business of the Company.
Any elected Officer may be removed at the pleasure of the Directors
and any appointed Officer may also be removed by the President.
The Officers shall be subject to the direction of and shall have such
authority and perform such duties as may be assigned from time to time by the
Board of Directors or the President.
ARTICLE V.
AMENDMENTS
These bylaws may be altered, amended, added to or repealed by a
majority of the entire Board of Directors at any meeting of said Board, provided
that notice thereof shall have been given in the notice of such meeting.
STATE OF CONNECTICUT,
ss. Hartford, CT..............19
COUNTY OF HARTFORD.
The foregoing is a true copy of the bylaws of HSB Group, Inc.
Attest:___________________
Corporate Secretary
<PAGE>
APPENDIX C
Amended and Restated
ARTICLES OF INCORPORATION
of
HSB GROUP, INC.
Effective as of _______, 1997
Hartford, Connecticut
<PAGE>
ARTICLES OF INCORPORATION
of
HSB GROUP, INC.
Article I.
The name of the Corporation is HSB Group, Inc.
Article II.
The address of the registered office of the Corporation is One State Street,
Hartford, Connecticut, 06102-5024. The name of the registered agent at that
address is R. Kevin Price.
Article III.
The nature of the business to be transacted, and the purposes to be promoted or
carried out by the Corporation, are to engage in any lawful act or activity for
which corporations may be formed under the Connecticut Business Corporation Act
or any successor statute thereto.
Article IV.
A. The authorized number of shares, which may be increased from time to time
when and if authorized by the shareholders shall consist of 50,000,000
shares of common stock and 500,000 shares of preferred stock, of which
250,000 shares have been designated as "Series A Junior Participating
Preferred Stock" and 2,000 shares have been designated as "Series B
Convertible Preferred Stock".
B. The Board of Directors is authorized to fix and determine the terms,
limitations and relative rights and preferences of the preferred stock
including, without limitation, any voting rights thereof, to divide and
issue the preferred stock in series, to fix and determine the variations
among series to the extent permitted by law and to provide that shares of
the preferred stock, or any series thereof, may be convertible into the
same or a different number of shares of common stock. No shareholder shall
have any preemptive right to purchase or subscribe to any shares of any
class of stock of the Corporation, whether authorized on or after the
effective date of this act, or to any securities convertible into shares of
any class of stock of the Corporation.
C. The designations, voting powers, preferences and relative, participating,
optional and other special rights of the Series A Junior Participating
Preferred Stock, and the qualifications, limitations or restrictions
thereof are as follows:
1. Designation and Amount.
The shares of such series shall be designated as "Series A Junior
Participating Preferred Stock" and the number of shares constituting
such series shall be 250,000.
2. Dividends and Distributions.
(a). Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and
superior to the shares of Series A Junior Participating Preferred
Stock with respect to dividends, the holders of shares of Series
A Junior Participating Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors out
of funds legally available for the purpose, quarterly dividends
payable in cash on the last business day of January, April, July
and October in each year (each such date being referred to herein
as a "Quarterly Dividend Payment Date ), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a
share or fraction of a share of Series A Junior Participating
Preferred Stock, in an amount per share (rounded to the nearest
cent) equal to the greater of (a) $12.00 or (b) subject to the
provision for adjustment hereinafter set forth, 200 times the
aggregate per share amount of all cash dividends, and 200 times
the aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares
of Common Stock (by reclassification or otherwise), declared on
the Common Stock, without par value, of the Corporation (the
"Common Stock") since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Junior Participating Preferred
Stock. In the event the Corporation shall at any time after
November 28, 1988 (the "Rights Declaration Date") (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in
each such case the amount to which holders of shares of Series A
Junior Participating Preferred Stock were entitled immediately
prior to such event under clause (b) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b). The Corporation shall declare a dividend or distribution on the
Series A Junior Participating Preferred Stock as provided in
Paragraph 2.(a) above immediately after it declares a dividend or
distribution on the Common Stock (other than a dividend payable
in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a
dividend of $12.00 per share on the Series A Junior Participating
Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(c). Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Junior Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue
of such shares of Series A Junior Participating Preferred stock
unless the date of issue of such shares is prior to the record
date for the first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue from the date of
issue of such shares or unless the date of issue is a Quarterly
Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Junior
Participating Preferred Stock entitled to receive a quarterly
dividend and before such Quarterly Dividend Payment Date in
either of which events such dividends shall begin to accrue and
be cumulative from such Quarterly Dividend Payment Date. Accrued
but unpaid dividends shall not bear interest. Dividends paid on
the shares of Series A Junior Participating Preferred Stock in an
amount less than the total amount of such dividends at the time
accrued and payable on such shares shall be allocated pro rata on
a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Series A Junior
Participating Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date
shall be no more than 30 days prior to the date fixed for the
payment thereof.
3. Voting Rights.
The holders of shares of Series A Junior Participating Preferred Stock
shall have the following voting rights:
(a). Subject to the provision for adjustment hereinafter set forth,
each share of Series A Junior Participating Preferred Stock shall
entitle the holder thereof to 200 votes on all matters submitted
to a vote of the shareholders of the Corporation. In the event
the Corporation shall at any time after the Rights Declaration
Date (i) declare any dividend on Common stock payable in shares
of Common Stock (ii) subdivide the outstanding Common Stock, or
(iii) combine the outstanding Common Stock into a smaller number
of shares, then in each such case the number of votes per share
to which holders of shares of Series A Junior Participating
Preferred Stock were entitled immediately prior to such event
shall be adjusted by multiplying such number by a fraction the
numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b). Except as otherwise provided herein or by law, the holders of
shares of Series A Junior Participating Preferred Stock and the
holders of shares of Common Stock shall vote together as one class
on all matters submitted to a vote of shareholders of the
Corporation.
(c). (i) If at any time dividends on any Series A Junior Participating
Preferred Stock shall be in arrears in an amount equal to six (6)
quarterly dividends thereon, the occurrence of such contingency
shall mark the beginning of a period (herein called a "default
period") which shall extend until such time when all accrued and
unpaid dividends for all previous quarterly dividend periods and
for the current quarterly dividend period on all shares of Series
A Junior Participating Preferred Stock then outstanding shall
have been declared and paid or set apart for payment. During each
default period, all holders of Preferred Stock (including holders
of the Series A Junior Participating Preferred Stock) with
dividends in arrears in an amount equal to six (6) quarterly
dividends thereon, voting as a class, irrespective of series,
shall have the right to elect two (2) Directors.
(ii) During any default period, such voting right of the holders of
Series A Junior Participating Preferred Stock may be exercised
initially at a special meeting called pursuant to subparagraph
(iii) of this Section 3.(c). or at any annual meeting of
shareholders, and thereafter at annual meetings of
shareholders, provided that neither such voting right nor the
right of the holders of any other series of Preferred Stock,
if any, to increase, in certain cases, the authorized number
of Directors shall be exercised unless the holders of ten
percent (10%) in number of shares of Preferred Stock
outstanding shall be present in person or by proxy. The
absence of a quorum of the holders of Common Stock shall not
affect the exercise by the holders of Preferred Stock of such
voting right. At any meeting at which the holders of Preferred
Stock shall exercise such voting right initially during an
existing default period, they shall have the right, voting as
a class, to elect Directors to fill such vacancies, if any in
the Board of Directors as may then exist up to two (2)
Directors or, if such right is exercised at an annual meeting,
to elect two (2) Directors. If the number which may be so
elected at any special meeting does not amount to the required
number, the holders of the Preferred Stock shall have the
right to make such increase in the number of Directors as
shall be necessary to permit the election by them of the
required number. After the holders of the Preferred Stock
shall have exercised their right to elect Directors in any
default period and during the continuance of such period, the
number of Directors shall not be increased or decreased except
by vote of the holders of Preferred Stock as herein provided
or pursuant to the rights of any equity securities ranking
senior to or pari passu with the Series A Junior Participating
Preferred Stock.
(iii)Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their right
to elect Directors, the Board of Directors may order, or any
shareholder or shareholders owning in the aggregate not less
than ten percent (10%) of the total number of shares of
Preferred Stock outstanding, irrespective of series, may
request, the calling of special meeting of the holders of
Preferred Stock, which meeting shall thereupon be called by
the President, a Vice-President or the Secretary of the
Corporation. Notice of such meeting and of any annual meeting
at which holders of Preferred Stock are entitled to vote
pursuant to this paragraph 3.(c).(iii) shall be given to each
holder of record of Preferred Stock by mailing a copy of such
notice to him at his last address as the same appears on the
books of the Corporation. Such meeting shall be called for a
time not earlier than 20 days and not later than 60 days after
such order or request or in default of the calling of such
meeting within 60 days after such order or request, such
meeting may be called on similar notice by any shareholder or
shareholders owning in the aggregate not less than ten percent
(10%) of the total number of shares of Preferred Stock
outstanding. Notwithstanding the provisions of this paragraph
3.(c).(iii), no such special meeting shall be called during
the period within 60 days immediately preceding the date fixed
for the next annual meeting of the shareholders.
(iv) In any default period, the holders of Common Stock, and other
classes of stock of the Corporation if applicable, shall
continue to be entitled to elect the whole number of Directors
until the holders of Preferred Stock shall have exercised
their right to elect two (2) Directors voting as a class,
after the exercise of which right (x) the Directors so elected
by the holders of Preferred Stock shall continue in office
until their successors shall have been elected by such holders
or until the expiration of the default period and (y) any
vacancy in the Board of Directors may (except as provided in
paragraph 3.(c).(ii) of this Section) be filled by vote of a
majority of the remaining Directors theretofore elected by the
holders of the class of stock which elected the Director whose
office shall have become vacant. References in this paragraph
3.(c) to Directors elected by the holders of a particular
class of stock shall include Directors elected by such
Directors to fill vacancies as provided in clause (y) of the
foregoing sentence.
(v) Immediately upon the expiration of a default period,(x) the
right of the holders of Preferred Stock as a class to elect
Directors shall cease, (y) the term of any Directors elected
by the holders of Preferred Stock as a class shall terminate
and (z) the number of Directors shall be such number as may
be provided for in the certificate of incorporation or
by-laws irrespective of any increase made pursuant to the
provisions of paragraph 3.(c).(ii) (such number being
subject, however, to change thereafter in any manner
provided by law or in the certificate of incorporation or
by-laws). Any vacancies in the Board of Directors effected
by the provisions of clauses (y) and (z) in the preceding
sentence may be filled by a majority of the remaining
Directors.
(d). Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights
and their consent shall not be required (except to the extent they
are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
4. Certain Restrictions.
(a). Whenever quarterly dividends or other dividends or distributions
payable on the Series A Junior Participating Preferred Stock as
provided in Section 2 are in arrears, thereafter and until all
accrued and unpaid dividends and distributions, whether or not
declared, on shares of Series A Junior Participating Preferred
Stock outstanding shall have been paid in full, the Corporation
shall not
(i) declare or pay dividends on, make any other distributions on,
or redeem or purchase or otherwise acquire for consideration
any shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series A
Junior Participating Preferred Stock;
(ii)declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with
the Series A Junior Participating Preferred Stock, except
dividends paid ratably on the Series A Junior Participating
Preferred Stock and all such parity stock on which dividends
are payable or in arrears in proportion to the total amounts
to which the holders of all such shares are then entitled;
(iii)redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with
the Series A Junior Participating Preferred Stock, provided
that the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in exchange
for shares of any stock of the Corporation ranking junior
(either as to dividends or upon dissolution, liquidation or
winding up) to the Series A Junior Participating Preferred
Stock;
(iv) purchase or otherwise acquire for consideration any shares
of Series A Junior Participating Preferred Stock, or any
shares of stock ranking on a parity with the Series A Junior
Participating-Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and
other relative rights and preferences of the respective
series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective
series or classes.
(b). The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire
such shares at such time and in such manner.
5. Reacquired Shares.
Any shares of Series A Junior Participating Preferred Stock purchased
or otherwise acquired by the Corporation in any manner whatsoever shall
be retired and cancelled promptly after the acquisition thereof. All
such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new
series of Preferred Stock to be created by resolution or resolutions of
the Board of Directors, subject to the conditions and restrictions on
issuance set forth herein.
6. Liquidation, Dissolution or Winding Up.
(a). Upon any liquidation (voluntary or otherwise), dissolution or winding
up of the Corporation, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Junior
Participating Preferred Stock unless, prior thereto, the holders of
shares of Series A Junior Participating Preferred Stock shall have
received $200 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the
date of such payment (the "Series A Liquidation Preference").
Following the payment of the full amount of the Series A Liquidation
Preference, no additional distributions shall be made to the holders
of shares of Series A Junior Participating Preferred Stock unless,
prior thereto, the holders of shares of Common Stock shall have
received an amount per share (the "Common Adjustment") equal to the
quotient obtained by dividing (i) the Series A Liquidation Preference
by (ii) 200 (as appropriately adjusted as set forth in paragraph 6.(c)
below to reflect such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock) (such number in
clause (ii), the "Adjustment Number"). Following the payment of the
full amount of the Series A Liquidation Preference and the Common
Adjustment in respect of all outstanding shares of Series A Junior
Participating Preferred Stock and Common Stock, respectively, holders
of Series A Junior Participating Preferred Stock and holders of shares
of Common Stock shall receive their ratable and proportionate share of
the remaining assets to be distributed in the ratio of the Adjustment
Number to 1 with respect to such Preferred Stock and Common Stock, on
a per share basis, respectively.
(b). In the event, however that there are not sufficient assets available
to permit payment in full of the Series A Liquidation Preference and
the liquidation preferences of all other series of preferred stocks if
any, which rank on a parity with the Series A Junior Participating
Preferred Stock, then such remaining assets shall be distributed
ratably to the holders of such parity shares in proportion to their
respective liquidation preferences. In the event, however, that there
are not sufficient assets available to permit payment in full of the
Common Adjustment then such remaining assets shall be distributed
ratably to the holders of Common Stock.
(c). In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock or
(iii) combine the outstanding Common Stock into a smaller number of
shares, then in each such case the Adjustment Number in effect
immediately prior to such event shall be adjusted by multiplying such
Adjustment Number by a fraction the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
7. Consolidation, Merger. etc.
In case the Corporation shall enter into any consolidation, merger,
combination or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any
other property, then in any such case the shares of Series A Junior
Participating Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share (subject to the provision
for adjustment hereinafter set forth) equal to 200 times the aggregate
amount of stock, securities, cash and/or any other property (payable in
kind), as the case may be, into which or for which each share of Common
Stock is changed or exchanged. In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock or (iii) combine the outstanding Common Stock
into a smaller number of shares, then in each such case the amount set
forth in the preceding sentence with respect to the exchange or change
of shares of Series A Junior Participating Preferred Stock shall be
adjusted by multiplying such amount by a fraction the numerator of which
is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to such event.
8. Optional Redemption.
(a). The Corporation shall have the option to redeem the whole or any part
of the Series A Junior Participating Preferred Stock at any time at a
redemption price equal to, subject to the provision for adjustment
hereinafter set forth, 200 times the "current per share market price"
of the Common Stock on the date of the mailing of the notice of
redemption, together with unpaid accumulated dividends to the date of
such redemption. In the event the Corporation shall at any time after
the Rights Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, (iii) combine the outstanding Common Stock into a
smaller number of shares or (iv) issue any shares by reclassification
of its shares of Common Stock, then in each such case the amount to
which holders of shares of Series A Junior Participating Preferred
Stock shall be otherwise entitled immediately prior to such event
under the immediately preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which shall be
the number of shares of Common Stock outstanding immediately after
such event and the denominator of which shall be the number of shares
of Common Stock that shall have been outstanding immediately prior to
such event. The "current per share market price" on any date shall be
deemed to be the average of the closing prices per share of such
Common Stock for the 10 consecutive Trading Days (as such term is
hereinafter defined) immediately prior to such date. The closing price
for each day shall be the last sale price, regular way, or, in case no
such sale shall take place on such day, the average of the closing bid
and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock
Exchange or, if the Common Stock shall not be listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities
listed or admitted to trading on the principal national securities
exchange on which the Common Stock shall not be listed or admitted to
trading or, if the Common Stock shall not be listed or admitted to
trading on any national securities exchange, the last quoted price or,
if not so quoted the average of the high bid and low asked prices in
the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or
such other system then in use or, if on any such date the Common Stock
shall not be quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market
maker making a market in the Common Stock selected by the Board of
Directors of the Corporation. If on such date no such market maker
shall be making a market in the Common Stock, the fair value of the
Common Stock on such date as determined in good faith by the Board of
Directors of the Corporation shall be used. The term "Trading Day"
shall mean a day on which the principal national securities exchange
on which the Common Stock shall be listed or admitted to trading shall
be open for the transaction of business or, if the Common Stock shall
not be listed or admitted to trading on any national securities
exchange, a Monday, Tuesday, Wednesday, Thursday or Friday on which
banking institutions in the State of New York shall not be authorized
or obligated by law or executive order to close.
(b). Notice of any such redemption shall be given by mailing to the holders
of the Series A Junior Participating Preferred Stock a notice of such
redemption, first class postage prepaid, not later than the thirtieth
day and not earlier than the sixtieth-day before the date fixed for
redemption, at their last address as the same shall appear upon the
books of the Corporation. Any notice which shall be mailed in the
manner herein provided shall be conclusively presumed to have been
duly given, whether or not the stockholder shall have received such
notice, and failure duly to give such notice by mail, or any defect in
such notice, to any holder of Series A Junior Participating Preferred
Stock shall not affect the validity of the proceedings for the
redemption of such Series A Junior Participating Preferred Stock.
(c). If less than all the outstanding shares of the Series A Junior
Participating Preferred Stock are to be redeemed by the
Corporation, the number of shares to be redeemed shall be
determined by the Board of Directors and the shares to be
redeemed shall be determined by lot or pro rata or in such fair
and equitable other manner as may be prescribed by resolution of
the Board of Directors.
(d). The notice of redemption to each holder of Series A Junior
Participating Preferred Stock shall specify (a) the number of
shares of Series A Junior Participating Preferred Stock of such
holder to be redeemed, (b) the date fixed for redemption, (c) the
redemption price and (d) the place of payment of the redemption
price.
(e). If any such notice of redemption shall have been duly given or if the
corporation shall have given to the bank or trust company hereinafter
referred to irrevocable written authorization promptly to give or
complete such notice, and if on or before the redemption date
specified therein the funds necessary for such redemption shall have
been deposited by the Corporation. with the bank or trust company
designated in such notice, doing business in the United States of
America and having a capital, surplus and undivided profits
aggregating at least $25,000,000 according to its last published
statement of condition, in trust for the benefit of the holders of
Series A Junior Participating Preferred Stock called for redemption,
then, notwithstanding that any certificate for such shares so called
for redemption shall not have been surrendered for cancellation, from
and after the time of such deposit all such shares called for
redemption shall no longer be deemed outstanding, all rights with
respect to such shares shall no longer be deemed outstanding and all
rights with respect to such shares shall forthwith cease and
terminate, except the right of the holders thereof to receive from
such bank or trust company at any time after the time of such deposit
the funds so deposited, without interest, the right to exercise, up to
the close of business on the fifth day before the date fixed for
redemption, all privileges of conversion or exchange if any. In case
less than all the shares represented by any surrendered certificate
shall be redeemed, a new certificate shall be issued representing the
unredeemed shares Any interest accrued on such funds so deposited
shall be paid to the Corporation from time to time. Any funds so
deposited and unclaimed at the end of six years from such redemption
date shall be repaid to the Corporation, after which the holders of
shares of Series A Junior Participating Preferred Stock called for
redemption shall look only to the Corporation for payment thereof;
provided, however, that any funds so deposited which shall not be
required for redemption because of the exercise of any privilege of
conversion or exchange subsequent to the date of deposit shall be
repaid to the Corporation forthwith.
9. Ranking.
The Series A Junior Participating Preferred Stock shall rank junior to
all other series of the Corporation's Preferred Stock as to the payment
of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise.
10. Amendment.
The Articles of Incorporation of the Corporation shall not be further
amended in any manner which would materially alter or change the
powers, preferences or special rights of the Series A Junior
Participating Preferred Stock so as to affect them adversely without
the affirmative vote of the holders of at least a majority of the
outstanding shares of Series A Junior Participating Preferred Stock,
voting separately as a class.
D. The designations, voting powers, preferences and relative, participating,
optional and other special rights of the Series B Convertible Preferred
Stock, and the qualifications, limitations or restrictions thereof are as
follows:
1. Number of Shares and Designations.
Two thousand (2,000) shares of the Preferred Stock, without par value,
of the Corporation are constituted as a series thereof designated as
Series B Convertible Preferred Stock (the "Series B Preferred Stock").
2. Definitions.
For purposes of the Series B Preferred Stock, the following terms shall
have the meanings indicated:
(a). "Accrued Dividends" shall have the meaning set forth in Section
4.(a) below.
(b). "Articles of Incorporation" shall mean the Articles of
Incorporation of the Corporation, as amended from time to time.
(c). "Board of Directors" shall mean the board of directors of the
Corporation or any committee authorized by such board of
directors to perform any of its responsibilities with respect to
the Series B Preferred Stock.
(d). "Business Day" shall mean any day other than a Saturday, Sunday
or a day on which state or federally chartered banking
institutions in New York, New York are not required to be open.
(e). "Call Event" shall mean the consummation of a transaction
pursuant to Section 2.2 of the Transaction Agreement.
(f). "Common Stock" shall mean the common stock of the Corporation,
without par value.
(g). "Constituent Person" shall have the meaning set forth in Section
8.(e) below.
(h). "Conversion Price" shall mean the conversion price per share of
Common Stock for which the Series B Preferred Stock is
convertible, as such Conversion Price may be adjusted pursuant to
Section 8. below. The initial conversion price will be $ 50.20.
(i). "Current Market Price" of publicly traded shares of Common Stock
or any other class of capital stock or other security of the
Corporation or any other issuer for any day shall mean the last
reported sales price, regular way on such day, or, if no sale
takes place on such day, the average of the reported closing bid
and asked prices on such day, regular way, in either case as
reported on the New York Stock Exchange Composite Tape or, if
such security is not listed or admitted for trading on the New
York Stock Exchange ("NYSE"), on the principal national
securities exchange on which such security is listed or admitted
for trading or, if not listed or admitted for trading on any
national securities exchange, on the National Market System of
the National Association of Securities Dealers, Inc. Automated
Quotations System ("NASDAQ") or, if such security is not quoted
on such National Market System, the average of the closing bid
and asked prices on such day in the over-the-counter market as
reported by NASDAQ or, if bid and asked prices for such security
on such day shall not have been reported through NASDAQ, the
average of the bid and asked prices on such day as furnished by
any NYSE member firm regularly making a market in such security
selected for such purpose by the Board of Directors.
(j). "Dividend Payment Date" shall mean the last business day of
January, April, July and October in each year, commencing on the
last business day of January, 1997, provided, however, that if
any Dividend Payment Date falls on any day other than a Business
Day, the dividend payment due on such Dividend Payment Date shall
be paid on the Business Day immediately following such Dividend
Payment Date.
(k). "Dividend Periods" shall mean quarterly dividend periods
commencing on the last business day of January, April, July and
October of each year and ending on and including the day
preceding the first day of the next succeeding Dividend Period
(other than the initial Dividend Period, which shall commence on
the Issue Date and end on and include January 30, 1997).
(l). "Fair Market Value" shall mean the average of the daily Current
Market Prices of a share of Common Stock during the five (5)
consecutive Trading Days selected by the Corporation commencing
not more than 20 Trading Days before, and ending not later than,
the earlier of the day in question and the day before the "ex"
date with respect to the issuance or distribution requiring such
computation. The term "'ex' date," when used with respect to any
issuance or distribution, means the first day on which the Common
Stock trades regular way, without the right to receive such
issuance or distribution, on the exchange or in the market, as
the case may be, used to determine that day's Current Market
Price.
(m). "Issue Date" shall mean the first date on which shares of Series
B Preferred Stock are issued and sold.
(n). "Junior Stock" shall mean the Common Stock, the Series A
Preferred Stock and any other class or series of shares of the
Corporation over which the Series B Preferred Stock has
preference or priority in the payment of dividends or in the
distribution of assets on any liquidation, dissolution or winding
up of the Corporation.
(o). "Liquidation Preference" shall have the meaning set forth in
Section 4.(a). below.
(p). "non-electing share" shall have the meaning set forth in Section
8.(e). below.
(q). "Person" shall mean any individual, firm, partnership,
corporation or other entity, and shall include any successor (by
merger or otherwise) of such entity.
(r). "Put Event" shall mean the consummation of a transaction pursuant
to Section 2.3 of the Transaction Agreement.
(s). "Redemption Date" shall have the meaning set forth in Section
5.(b). below.
(t). "Rights" shall mean the rights of the Corporation which are
issuable under the Corporation's Rights Agreement dated as of
November 28, 1988, and as amended from time to time, or rights to
purchase any capital stock of the Corporation under any successor
shareholder rights plan or plans adopted in replacement of the
Corporation's Rights Agreement.
(u). "Securities" shall have the meaning set forth in Section
8.(d).(3) below.
(v). "Series A Preferred Stock" shall mean the series of Preferred
Stock of the Corporation, without par value, designated Series A
Junior Participating Preferred Stock.
(w). "Series B Preferred Stock" shall have the meaning set forth in
Section 1 above.
(x). "set apart for payment" shall be deemed to include, without any
action other than the following, the recording by the Corporation
in its accounting ledgers of any accounting or bookkeeping entry
which indicates, pursuant to a declaration of dividends or other
distribution by the Board of Directors, the allocation of funds
to be so paid on any series or class of capital stock of the
Corporation; provided, however, that if any funds for any class
or series of Junior Stock or any class or series of stock ranking
on a parity with the Series B Preferred Stock as to the payment
of dividends are placed in a separate account of the Corporation
or delivered to a disbursing, paying or other similar agent, then
"set apart for payment" with respect to the Series B Preferred
Stock shall mean placing such funds in a separate account or
delivering such funds to a disbursing, paying or other similar
agent.
(y). "Stated Value" shall have the meaning set forth in Section 4.(a)
below.
(z). "Trading Day" shall mean any day on which the securities in
question are traded on the NYSE, or if such securities are not
listed or admitted for trading on the NYSE, on the principal
national securities exchange on which such securities are listed
or admitted, or if not listed or admitted for trading on any
national securities exchange, on the National Market System of
the NASDAQ, or if such securities are not quoted on such National
Market System, in the applicable securities market in which the
securities are traded.
(aa)."Transaction" shall have the meaning set forth in Section
D.8.(e). hereof.
(bb)."Transaction Agreement" shall mean that certain Transaction
Agreement, dated as of December 30, 1994, by and among the
Corporation and General Reinsurance Corporation.
(cc.)"Transfer Agent" means The First National Bank of Boston or such
other agent or agents of the Corporation as may be designated by
the Board of Directors as the transfer agent for the Series B
Preferred Stock.
3. Dividends.
(a). The holders of shares of the Series B Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of
Directors out of assets legally available for that purpose,
dividends payable in cash at the rate per annum of $650 per share
of Series B Preferred Stock. Such dividends shall be cumulative
from the Issue Date, whether or not in any Dividend Period or
Periods there shall be assets of the Corporation legally
available for the payment of such dividends, and shall be payable
quarterly, when, as and if declared by the Board of Directors, in
arrears on Dividend Payment Dates, commencing on January 31,
1997. Each such dividend shall be payable in arrears to the
holders of record of shares of the Series B Preferred Stock, as
they appear on the stock records of the Corporation at the close
of business on such record dates, which shall not be more than 60
days nor less than 10 days preceding the payment dates thereof,
as shall be fixed by the Board of Directors or a duly authorized
committee thereof. Accrued and unpaid dividends for any past
Dividend Periods may be declared and paid at any time, without
reference to any Dividend Payment Date, to holders of record on
such date, not exceeding 45 days preceding the payment date
thereof, as may be fixed by the Board of Directors.
(b). The amount of dividends payable for each full Dividend Period for
the Series B Preferred Stock shall be computed by dividing the
annual dividend rate by four. The amount of dividends payable for
the initial Dividend Period, or any other period shorter or
longer than a full Dividend Period, on the Series B Preferred
Stock shall be computed on the basis of twelve 30-day months and
a 360-day year. Holders of shares of Series B Preferred Stock
shall not be entitled to any dividends, whether payable in cash,
property or stock, in excess of cumulative dividends, as herein
provided, on the Series B Preferred Stock. No interest, or sum of
money in lieu of interest, shall be payable in respect of any
dividend payment or payments on the Series B Preferred Stock that
may be in arrears.
(c). So long as any shares of the Series B Preferred Stock are
outstanding, no dividends, except as described in the next
succeeding sentence, shall be declared or paid or set apart for
payment on any class or series of stock of the Corporation
ranking, as to dividends and amounts distributable upon
liquidation, dissolution or winding up, on a parity with the
Series B Preferred Stock, for any period unless full cumulative
dividends have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart
for such payment on the Series B Preferred Stock for all Dividend
Periods terminating on or prior to the date of payment of the
dividend on such class or series of parity stock. When dividends
are not paid in full or a sum sufficient for such payment is not
set apart, as aforesaid, all dividends declared upon shares of
the Series B Preferred Stock and all dividends declared upon any
other class or series of stock ranking on a parity as to
dividends and amount distributable upon liquidation, dissolution
or winding up shall be declared ratably in proportion to the
respective amounts of dividends accumulated and unpaid on the
Series B Preferred Stock and accumulated and unpaid on such
parity stock.
(d). So long as any shares of the Series B Preferred Stock are
outstanding, no dividends (other than (i) the Rights and (ii)
dividends or distributions paid in shares of, or options,
warrants or rights to subscribe for or purchase shares of, Junior
Stock) shall be declared or paid or set apart for payment or
other distribution declared or made upon Junior Stock, nor shall
any Junior Stock or any series of stock of the Corporation
ranking, as to dividends and amounts distributable upon
liquidation, dissolution or winding up, on a parity with Series B
Preferred Stock be redeemed, purchased or otherwise acquired
(other than a redemption, purchase or other acquisition of shares
of Common Stock made for purposes of an employee incentive or
benefit plan of the Corporation or any subsidiary) for any
consideration (or any moneys be paid to or made available for a
sinking fund for the redemption of any shares of any such stock)
by the Corporation, directly or indirectly (except by conversion
into or exchange for Junior Stock), unless in each case the full
cumulative dividends on all outstanding shares of the Series B
Preferred Stock and any other stock of the Corporation ranking on
a parity with the Series B Preferred Stock, as to dividends and
amounts distributable upon liquidation, dissolution or winding up
shall have been paid or set apart for payment for all past
Dividend Periods with respect to the Series B Preferred Stock and
all past dividend periods with respect to such parity stock.
4. Payments upon Liquidation.
(a). In the event of any liquidation, dissolution or winding up of the
Corporation before any payment or distribution of the assets of
the Corporation (whether capital or surplus) shall be made to or
set apart for the holders of Junior Stock, the holders of the
shares of Series B Preferred Stock shall be entitled to receive
Ten Thousand Dollars ($10,000) per share of Series B Preferred
Stock (the "Stated Value") plus an amount equal to all dividends
(whether or not earned or declared) accrued and unpaid thereon
("Accrued Dividends") to the date of final distribution to such
holders (the "Liquidation Preference"); but such holders shall
not be entitled to any further payment. If, upon any liquidation,
dissolution or winding up of the Corporation, the assets of the
Corporation, or proceeds thereof, distributable among the holders
of the shares of Series B Preferred Stock shall be insufficient
to pay in full the Liquidation Preference, and the liquidation
preference on all other shares of any class or series of stock
ranking, as to dividends and amounts distributable upon
liquidation, dissolution or winding up, on a parity with the
Series B Preferred Stock, then such assets, or the proceeds
thereof, shall be distributed among the holders of shares of
Series B Preferred Stock and any such other parity stock ratably
in accordance with the respective amounts that would be payable
on such shares of Series B Preferred Stock and any such other
stock if all amounts payable thereon were paid in full. For the
purposes of this Section 4., (i) a consolidation or merger of the
Corporation with one or more corporations, or (ii) a sale or
transfer of all or substantially all of the Corporation's assets,
shall not be deemed to be a liquidation, dissolution or winding
up, voluntary or involuntary, of the Corporation.
(b). Subject to the rights of the holders of shares of any series or
class or classes of stock ranking on a parity with or prior to
the Series B Preferred Stock as to dividends and amounts
distributable upon liquidation, dissolution or winding up of the
Corporation, after payment shall have been made to the holders of
the Series B Preferred Stock, as and to the fullest extent
provided in this Section 4, any other series or class or
classes of Junior Stock shall, subject to the respective terms and
provisions (if any) applying thereto, be entitled to receive any
and all assets remaining to be paid or distributed, and the
holders of the Series B Preferred Stock shall not be entitled
to share therein.
5. Redemption at the Option of the Corporation.
(a). The shares of Series B Preferred Stock shall be redeemable at the
option of the Corporation by resolution of its Board of
Directors, in whole (i) at any time on or after the fifth
anniversary of the Issue Date or (ii) if on the date of a notice
pursuant to Section 5.(b) below, the Current Market Price of all
Common Stock which would be issuable upon conversion of all of
the 2,000 shares of Preferred Stock originally issued, as of any
date within ten Business Days prior to such notice date, exceeded
$22 million. In either case, such redemption shall be at the
Stated Value, plus all dividends accrued and unpaid on the shares
of Series B Preferred Stock up to the date fixed for the
redemption, upon giving notice as provided hereinbelow.
(b). At least 90 days prior to the date fixed for the redemption of
shares of Series B Preferred Stock, a written notice shall be
mailed in a postage prepaid envelope to each holder of record of
the shares of Series B Preferred Stock to be redeemed, addressed
to such holder at his post office address as shown on the records
of the Corporation, notifying such holder of the election of the
corporation to redeem such shares, stating the date fixed for
redemption thereof (the "Redemption Date"), and calling upon such
holder to surrender to the Corporation, on the Redemption Date at
the place designated in such notice, his certificate or
certificates representing the number of shares specified in such
notice of redemption.
On or after the Redemption Date, each holder of shares of Series B
Preferred Stock to be redeemed shall present and surrender his
certificate or certificates for such shares to the Corporation at
the place designated in such notice and thereupon the redemption
price of such shares shall be paid to or on the order of the
person whose name appears on such certificate or certificates as
the owner thereof and each surrendered certificate shall be
canceled. In case less than all the shares represented by any such
certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
From and after the Redemption Date (unless default shall be made
by the Corporation in payment of the redemption price), all
dividends on the shares of Series B Preferred Stock designated for
redemption in such notice shall cease to accrue, and all rights of
the holders thereof as stockholders of the Corporation, except the
right to receive the redemption price of such shares (including
all accrued and unpaid dividends up to the Redemption Date) upon
the surrender of certificates representing the same, shall cease
and terminate and such shares shall not thereafter be transferred
(except with the consent of the Corporation) on the books of the
Corporation, and such shares shall not be deemed to be outstanding
for any purpose whatsoever. At its election, the Corporation,
prior to the Redemption Date, may deposit the redemption price
(including all accrued and unpaid dividends up to the Redemption
Date) of shares of Series B Preferred Stock so called for
redemption in trust for the holders thereof with a bank or trust
company (having a capital surplus and undivided profits
aggregating not less than $50,000,000) in the Borough of
Manhattan, City and State of New York, or in any other city in
which the Corporation at the time shall maintain a transfer agency
with respect to such shares, in which case the aforesaid notice to
holders of shares of Series B Preferred Stock to be redeemed shall
state the date of such deposit, shall specify the office of such
bank or trust company as the place of payment of the redemption
price, and shall call upon such holders to surrender the
certificates representing such shares at such place on or after
the date fixed in such redemption notice (which shall not be later
than the Redemption Date) against payment of the redemption price
(including all accrued and unpaid dividends up to the Redemption
Date). Any interest accrued on such funds shall be paid to the
Corporation from time to time. Any moneys so deposited which shall
remain unclaimed by the holders of such shares of Series B
Preferred Stock at the end of two years after the Redemption Date
shall be returned by such bank or trust company to the
Corporation.
If a notice of redemption has been given pursuant to this Section
5. and any holder of shares of Series B Preferred Stock shall,
prior to the close of business on the day preceding the Redemption
Date, give written notice to the Corporation pursuant to Section
8. below of the conversion of any or all of the shares to be
redeemed held by such holder (accompanied by a certificate or
certificates for such shares, duly endorsed or assigned to the
Corporation, and any necessary transfer tax payment, as required
by Section 8. below), then such redemption shall not become
effective as to such shares to be converted, such conversion shall
become effective as provided in Section 8. below, and any moneys
set aside by the Corporation for the redemption of such shares of
converted Series B Preferred Stock shall revert to the general
funds of the Corporation.
6. Redemption at the Option of the Holder.
The Corporation, when requested to do so in writing by a holder of
Series B Preferred Stock at any time after the earlier of (i) the
eighth anniversary of an Issue Date pursuant to a Call Event or (ii)
the fifth anniversary of an Issue Date pursuant to a Put Event, shall
purchase or redeem the share or shares of Series B Preferred Stock
identified by such holder, such purchase or redemption to occur on a
date not more than thirty days after receipt by the Corporation of such
request, at the Stated Value of the share or shares to be purchased or
redeemed, plus all dividends accrued and unpaid on such share or shares
up to the date of such purchase or redemption.
7. Shares to Be Retired.
All shares of Series B Preferred Stock which shall have been issued and
reacquired in any manner by the Corporation (excluding, until the
Corporation elects to retire them, shares which are held as treasury
shares) shall be restored to the status of authorized but unissued
shares of Preferred Stock, without designation as to series.
8. Conversion.
Holders of shares of Series B Preferred Stock shall have the right to
convert all or a portion of such shares into shares of Common Stock, as
follows:
(a). Subject to and upon compliance with the provisions of this
Section 8., a holder of shares of Series B Preferred Stock shall
have the right, at its option, at any time after 5 Business Days
after the Issue Date, to convert such shares into the number of
fully paid and nonassessable shares of Common Stock obtained by
dividing the aggregate Stated Value of such shares by the
Conversion Price (as in effect on the date provided for in the
last paragraph of Section 8.(b).) by surrendering such shares to
be converted, such surrender to be made in the manner provided in
Section 8.(b).; provided, however, that the right to convert
shares called for redemption pursuant to Section 5. of this
article shall terminate at the close of business on the day
preceding the Redemption Date, unless the Corporation shall
default in making payment of the cash payable upon such
redemption under Section 5. of this article. Certificates will be
issued for the remaining shares of Series B Preferred Stock in
any case in which fewer than all of the shares of Series B
Preferred Stock represented by a certificate are converted.
(b). In order to exercise the conversion right, the holder of shares
of Series B Preferred Stock to be converted shall surrender the
certificate or certificates representing such shares, duly
endorsed or assigned to the Corporation or in blank, at the
office of the Transfer Agent in the Borough of Manhattan, City of
New York, accompanied by written notice to the Corporation that
the holder thereof elects to convert Series B Preferred Stock.
Unless the shares issuable on conversion are to be issued in the
same name as the name in which such share of Series B Preferred
Stock is registered, each share surrendered for conversion shall
be accompanied by instruments of transfer, in form satisfactory
to the Corporation, duly executed by the holder or such holder's
duly authorized attorney and an amount sufficient to pay any
transfer or similar tax (or evidence reasonably satisfactory to
the Corporation demonstrating that such taxes have been paid).
Holders of shares of Series B Preferred Stock at the close of
business on a dividend payment record date shall be entitled to
receive the dividend payable on such shares on the corresponding
Dividend Payment Date notwithstanding the conversion thereof
following such dividend payment record date and prior to such
Dividend Payment Date. Except as provided above, the Corporation
shall make no payment or allowance for unpaid dividends, whether
or not in arrears, on converted shares or for dividends on the
shares of Common Stock issued upon such conversion.
As promptly as practicable after the surrender of certificates
for shares of Series B Preferred Stock as aforesaid, the
Corporation shall issue and shall deliver at such office to such
holder, or on his or her written order, a certificate or
certificates for the number of full shares of Common Stock
issuable upon the conversion of such shares in accordance with
provisions of this Section 8, and any fractional interest in
respect of a share of Common Stock arising upon such conversion
shall be settled as provided in Section 8.(c).
Each conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which the
certificates for shares of Series B Preferred Stock shall have
been surrendered and such notice (and if applicable, payment of
an amount equal to the dividend payable on such shares) received
by the Corporation as aforesaid, and the person or persons in
whose name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be
deemed to have become the holder or holders of record of the
shares represented thereby at such time on such date and such
conversion shall be at the Conversion Price in effect at such
time on such date, unless the stock transfer books of the
Corporation shall be closed on that date, in which event such
person or persons shall be deemed to have become such holder or
holders of record at the close of business on the next succeeding
day on which such stock transfer books are open, but such
conversion shall be at the Conversion Price in effect on the date
upon which such shares shall have been surrendered and such
notice received by the Corporation.
(c). No fractional shares or scrip representing fractions of shares of
Common Stock shall be issued upon conversion of the Series B
Preferred Stock. Instead of any fractional interest in a share of
Common Stock that would otherwise be deliverable upon the
conversion of a share of Series B Preferred Stock, the
Corporation shall pay to the holder of such share an amount in
cash based upon the Current Market Price of Common Stock on the
Trading Day immediately preceding the date of conversion. If more
than one share shall be surrendered for conversion at one time by
the same holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis
of the aggregate number of shares of Series B Preferred Stock so
surrendered.
(d). The Conversion Price shall be adjusted from time to time as
follows:
(1) If the Corporation shall after the Issue Date (A) pay a
dividend or make a distribution on its capital stock in
shares of its Common Stock, (B) subdivide its outstanding
Common Stock into a greater number of shares, (C) combine
its outstanding Common Stock into a smaller number of shares
or (D) issue any shares of capital stock by reclassification
of its Common Stock, the Conversion Price in effect at the
opening of business on the day next following the date fixed
for the determination of stockholders entitled to receive
such dividend or distribution or at the opening of business
on the day next following the day on which such subdivision,
combination or reclassification becomes effective, as the
case may be, shall be adjusted so that the holder of any
share of Series B Preferred Stock thereafter surrendered for
conversion shall be entitled to receive the number of shares
of Common Stock that such holder would have owned or have
been entitled to receive after the happening of any of the
events described above had such share been converted
immediately prior to the record date in the case of a
dividend or distribution or the effective date in the case
of a subdivision, combination or reclassification. An
adjustment made pursuant to this subparagraph (a) shall
become effective immediately after the opening of business
on the day next following the record date (except as
provided in Section 8.(h). below) in the case of a dividend
or distribution and shall become effective immediately after
the opening of business on the day next following the
effective date in the case of a subdivision, combination or
reclassification.
(2) If the Corporation shall issue after the Issue Date rights
or warrants (in each case, other than the Rights) to all
holders of Common Stock entitling them (for a period
expiring within 45 days after the record date mentioned
below) to subscribe for or purchase Common Stock at a price
per share less than the Fair Market Value per share of
Common Stock on the record date for the determination of
stockholders entitled to receive such rights or warrants,
then the Conversion Price in effect at the opening of
business on the day next following such record date shall be
adjusted to equal the price determined by multiplying (I)
the Conversion Price in effect immediately prior to the
opening of business on the day next following the date fixed
for such determination by (II) a fraction, the numerator of
which shall be the sum of (A) the number of shares of Common
Stock outstanding on the close of business on the date fixed
for such determination and (B) the number of shares that the
aggregate proceeds to the Corporation from the exercise of
such rights or warrants for Common Stock would purchase at
such Fair Market Value, and the denominator of which shall
be the sum of (A) the number of shares of Common Stock
outstanding on the close of business on the date fixed for
such determination and (B) the number of additional shares
of Common Stock offered for subscription or purchase
pursuant to such rights or warrants. Such adjustment shall
become effective immediately after the opening of business
on the day next following such record date (except as
provided in Section 8.(h). below). In determining whether
any rights or warrants entitle the holders of Common Stock
to subscribe for or purchase shares of Common Stock at less
than such Fair Market Value, there shall be taken into
account any consideration received by the Corporation upon
issuance and upon exercise of such rights or warrants, the
value of such consideration, if other than cash, to be
determined by the Board of Directors.
(3) If the Corporation shall distribute to all holders of its
Common Stock any shares of capital stock of the Corporation
(other than Common Stock) or evidence of its indebtedness or
assets (excluding cash dividends or distributions paid from
profits or surplus of the Corporation) or rights or warrants
(in each case, other than the Rights) to subscribe for or
purchase any of its securities (excluding those rights and
warrants issued to all holders of Common Stock entitling
them for a period expiring within 45 days after the record
date referred to in subparagraph (b) above to subscribe for
or purchase Common Stock, which rights and warrants are
referred to in and treated under subparagraph (b) above (any
of the foregoing being hereinafter in this subparagraph (3)
called the "Securities"), then in each such case the
Conversion Price shall be adjusted so that it shall equal
the price determined by multiplying (I) the Conversion Price
in effect immediately prior to the close of business on the
date fixed for the determination of stockholders entitled to
receive such distribution by (II) a fraction, the numerator
of which shall be the Fair Market Value per share of the
Common Stock on the record date mentioned below less the
then fair market value (as determined by the Board of
Directors, whose determination shall be conclusive) of the
portion of the capital stock or assets or evidences of
indebtedness so distributed or of such rights or warrants
applicable to one share of Common Stock, and the denominator
of which shall be the Fair Market Value per share of the
Common Stock on the record date mentioned below. Such
adjustment shall become effective immediately at the opening
of business on the Business Day next following (except as
provided in Section 8.(h) below) the record date for the
determination of shareholders entitled to receive such
distribution. For the purposes of this clause (c), the
distribution of a Security, which is distributed not only to
the holders of the Common Stock on the date fixed for the
determination of stockholders entitled to such distribution
of such security, but also is distributed with each share of
Common Stock delivered to a person converting a share of
Series B Preferred Stock after such determination date,
shall not require an adjustment of the Conversion Price
pursuant to this clause (c); provided that on the date, if
any, on which a Person converting a share of Series B
Preferred Stock would no longer be entitled to receive such
Security with a share of Common Stock (other than as a
result of the termination of all such Securities), a
distribution of such Securities shall be deemed to have
occurred and the Conversion Price shall be adjusted as
provided in this clause (c) (and such day shall be deemed to
be "the date fixed for the determination of the stockholders
entitled to receive such distribution" and "the record date"
within the meaning of the two preceding sentences).
(4) No adjustment in the Conversion Price shall be required
unless such adjustment would require a cumulative increase
or decrease of at least 1% in such price; provided, however,
that any adjustments that by reason of this subparagraph (4)
are not required to be made shall be carried forward and
taken into account in any subsequent adjustment until made;
and provided, further, that any adjustment shall be required
and made in accordance with the provisions of this Section 8
(other than this subparagraph (4)) not later than such time
as may be required in order to preserve the tax-free nature
of a distribution to the holders of shares of Common Stock.
Notwithstanding any other provisions of this Section 8, the
Corporation shall not be required to make any adjustment of
the Conversion Price for the issuance of any shares of
Common Stock pursuant to any plan providing for the
reinvestment of dividends on securities of the Corporation.
All calculations under this Section 8 shall be made to the
nearest cent (with $.005 being rounded upward) or to the
nearest 1/10 of a share (with .05 of a share being rounded
upward), as the case may be. Anything in this Section 8.(d).
to the contrary notwithstanding, the Corporation shall be
entitled, to the extent permitted by law, to make such
reductions in the Conversion Price, in addition to those
required by this Section 8.(d)., as it in its discretion
shall determine to be advisable in order that any stock
dividends, subdivision of shares, reclassification or
combination of shares, distribution of rights or warrants to
purchase stock or securities, or a distribution of other
assets (other than cash dividends) hereafter made by the
Corporation to its stockholders shall not be taxable.
(e). If the Corporation shall be a party to any transaction (including
without limitation a merger, consolidation, sale of all or
substantially all of the Corporation's assets or recapitalization
of the Common Stock and excluding any transaction as to which
Section 8.(d).(1) applies) (each of the foregoing being referred
to herein as a "Transaction"), in each case as a result of which
shares of Common Stock shall be converted into the right to
receive stock, securities or other property (including cash or
any combination thereof), each share of Series B Preferred Stock
which is not converted into the right to receive stock,
securities or other property in connection with such Transaction
shall thereafter be convertible into the kind and amount of
shares of stock, securities and other property (including cash or
any combination thereof) receivable upon the consummation of such
Transaction by a holder of that number of shares or fraction
thereof of Common Stock into which one share of Series B
Preferred Stock was convertible immediately prior to such
Transaction, assuming such holder of Common Stock (i) is not a
Person with which the Corporation consolidated or into which the
Corporation merged or which merged into the Corporation or to
which such sale or transfer was made, as the case may be
("Constituent Person"), or an affiliate of a Constituent Person
and (ii) failed to exercise his rights of election, if any, as to
the kind or amount of stock, securities and other property
(including cash) receivable upon such Transaction (provided that
if the kind or amount of stock, securities and other property
(including cash) receivable upon such Transaction is not the same
for each share of Common Stock of the Corporation held
immediately prior to such Transaction by other than a Constituent
Person or an affiliate thereof and in respect of which such
rights of election shall not have been exercised ("non-electing
share"), then for the purpose of this Section 8.(e). the kind and
amount of stock, securities and other property (including cash)
receivable upon such Transaction by each non-electing share shall
be deemed to be the kind and amount so receivable per share by
the plurality of the non-electing shares). The Corporation shall
not be a party to any Transaction unless the terms of such
Transaction are consistent with the provisions of this Section
8.(e). and it shall not consent or agree to the occurrence of any
Transaction until the Corporation has entered into an agreement
with the successor or purchasing entity, as the case may be, for
the benefit of the holders of the Series B Preferred Stock that
will contain provisions enabling the holders of the Series B
Preferred Stock that remains outstanding after such Transaction
to convert into the consideration received by holders of Common
Stock at the Conversion Price in effect immediately prior to such
Transaction. The provisions of this Section 8.(e) shall similarly
apply to successive Transactions.
(f). If:
(1) the Corporation shall declare a dividend (or any other
distribution) on the Common Stock (other than in cash out
of profits or surplus and other than the Rights); or
(2) the Corporation shall authorize the granting to the
holders of the Common Stock of rights or warrants (other
than the Rights) to subscribe for or purchase any shares
of any class or any other rights or warrants (other than
the Rights); or
(3) there shall be any reclassification of the Common Stock
(other than an event to which Section 8.(d).(1) applies)
or any consolidation or merger to which the Corporation is
a party and for which approval of any stockholders of the
Corporation is required, or the sale or transfer of all or
substantially all of the assets of the Corporation as an
entirety; or
(4) there shall occur the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation,
then the Corporation shall cause to be filed with the
Transfer Agent and shall cause to be mailed to the holders
of shares of the Series B Preferred Stock at their
addresses as shown on the stock records of the
Corporation, as promptly as possible, but at least 15 days
prior to the applicable date hereinafter specified, a
notice stating (A) the date on which a record is to be
taken for the purpose of such dividend, distribution or
rights or warrants, or, if a record is not to be taken,
the date as of which the holders of Common Stock of record
to be entitled to such dividend, distribution or rights or
warrants are to be determined or (B) the date on which
such reclassification, consolidation, merger, sale,
transfer, liquidation, dissolution or winding up is
expected to become effective, and the date as of which it
is expected that holders of Common Stock of record shall
be entitled to exchange their shares of Common Stock for
securities or other property, if any, deliverable upon
such reclassification, consolidation, merger, sale,
transfer, liquidation, dissolution or winding up. Failure
to give or receive such notice or any defect therein shall
not affect the legality or validity of the proceedings
described in this Section 8.
(g). Whenever the Conversion Price is adjusted as herein provided, the
Corporation shall promptly file with the Transfer Agent an
officer's certificate setting forth the Conversion Price after
such adjustment and setting forth a brief statement of the facts
requiring such adjustment which certificate shall be prima facie
evidence of the correctness of such adjustment. Promptly after
delivery of such certificate, the Corporation shall prepare a
notice of such adjustment of the Conversion Price setting forth
the adjusted Conversion Price and the effective date of such
adjustment and shall mail such notice of such adjustment of the
Conversion Price to the holder of each share of Series B
Preferred Stock at such holder's last address as shown on the
stock records of the Corporation.
(h). In any case in which Section 8.(d). provides that an adjustment
shall become effective on the day next following a record date
for an event, the Corporation may defer until the occurrence of
such event (A) issuing to the holder of any share of Series B
Preferred Stock converted after such record date and before the
occurrence of such event the additional shares of Common Stock
issuable upon such conversion by reason of the adjustment
required by such event over and above the Common Stock issuable
upon such conversion before giving effect to such adjustment and
(B) paying to such holder any amount in cash in lieu of any
fraction pursuant to Section 8.(c).
(i). For purposes of this Section 8, the number of shares of Common
Stock at any time outstanding shall not include any shares of
Common Stock then owned or held by or for the account of the
Corporation. The Corporation shall not pay a dividend or make
any distribution on shares of Common Stock held in the treasury
of the Corporation.
(j). There shall be no adjustment of the Conversion Price in case of
the issuance of any stock of the Corporation in a
reorganization, acquisition or other similar transaction except
as specifically set forth in this Section 8. If any action or
transaction would require adjustment of the Conversion Price
pursuant to more than one paragraph of this Section 8, only one
adjustment shall be made and such adjustment shall be the
amount of adjustment that has the highest absolute value.
(k). If the Corporation shall take any action affecting the Common
Stock, other than action described in this Section 8, that in
the opinion of the Board of Directors would materially
adversely affect the conversion rights of the holders of the
shares of Series B Preferred Stock, the Conversion Price for
the Series B Preferred Stock may be adjusted, to the extent
permitted by law, in such manner, if any, and at such time, as
the Board of Directors may determine to be equitable in the
circumstances.
(l) The Corporation covenants that it will at all times reserve and
keep available, free from preemptive rights, out of the aggregate
of its authorized but unissued shares of Common Stock or its
issued shares of Common Stock held in its treasury, or both, for
the purpose of effecting conversion of the Series B Preferred
Stock, the full number of shares of Common Stock deliverable upon
the conversion of all outstanding shares of Series B Preferred
Stock not theretofore converted. For purposes of this Section
8.(l)., the number of shares of Common Stock that shall be
deliverable upon the conversion of all outstanding shares of
Series B Preferred Stock shall be computed as if at the time of
computation all such outstanding shares were held by a single
holder.
The Corporation covenants that any shares of Common Stock issued
upon conversion of the Series B Preferred Stock shall be validly
issued, fully paid and non-assessable. Before taking any action
that would cause an adjustment reducing the Conversion Price
below the then-par value of the shares of Common Stock
deliverable upon conversion of the Series B Preferred Stock, the
Corporation will take any corporate action that, in the opinion
of its counsel, may be necessary in order that the Corporation
may validly and legally issue fully-paid and nonassessable shares
of Common Stock at such adjusted Conversion Price.
(m). The Corporation will pay any and all documentary stamp or similar
issue or transfer taxes payable in respect of the issue or
delivery of shares of Common Stock or other securities or
property on conversion of the Series B Preferred Stock pursuant
hereto; provided, however, that the Corporation shall not be
required to pay any tax that may be payable in respect of any
transfer involved in the issue or delivery of shares of Common
Stock or other securities or property in a name other than that
of the holder of the Series B Preferred Stock to be converted and
no such issue or delivery shall be made unless and until the
person requesting any issue or delivery has paid to the
Corporation the amount of any such tax or established, to the
reasonable satisfaction of the Corporation, that such tax has
been paid.
9. Ranking.
Any class or series of stock of the Corporation shall be deemed to
rank:
(a). prior to the Series B Preferred Stock, as to the payment of
dividends and as to distributions of assets upon liquidation,
dissolution or winding up, if the holders of such class or series
shall be entitled to the receipt of dividends and of amounts
distributable upon liquidation, dissolution or winding up in
preference or priority to the holders of Series B Preferred
Stock;
(b). on a parity with the Series B Preferred Stock, as to thepayment
of dividends and as to distribution of assets upon liquidation,
dissolution or winding up, whether or not the dividend rates,
dividend payment dates or redemption or liquidation prices per
share thereof be different from those of the Series B Preferred
Stock if the holders of such class of stock or series and the
Series B Preferred Stock shall be entitled to the receipt of
dividends and of amounts distributable upon liquidation,
dissolution or winding up in proportion to their respective
amounts of accrued and unpaid dividends per share or liquidation
preferences, without preference or priority one over the other;
and
(c). junior to the Series B Preferred Stock, as to the payment of
dividends or as to the distribution of assets upon liquidation,
dissolution or winding up, if such stock or series shall be
Common Stock or Series A Preferred Stock or if the holders of
Series B Preferred Stock shall be entitled to receipt of
dividends or of amounts distributable upon liquidation,
dissolution or winding up in preference or priority to the
holders of shares of such stock or series.
10. Voting.
(a). The holders of shares of Series B Preferred Stock shall have the
following voting rights:
1. Subject to the provision for adjustment hereinafter setforth,
each share of Series B Preferred Stock shall entitle the holder
thereof to 199 votes on all matters submitted to a vote of the
shareholders of the Corporation. In the event the Corporation
shall at any time after the Issue Date (i) declare any dividend
on Common Stock payable in shares of Common Stock, (ii) subdivide
the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such
case the number of votes per share to which holders of shares of
Series B Preferred Stock were entitled immediately prior to such
event shall be adjusted by multiplying such number by a fraction
the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
2. Except as otherwise provided herein or by law, theholders of
shares of Series B Preferred Stock and the holders of shares of
Common Stock shall vote together as one class on all matters
submitted to a vote of shareholders of the Corporation.
(b) Unless the affirmative vote or consent of the holders of a
greater number of shares shall then be required by law, the
consent of the holders of at least 66 2/3% of all of the
outstanding shares of Series B Preferred Stock (in addition to
any vote required by the terms of any other affected series of
Preferred Stock ranking on a parity with the Series B Preferred
Stock as to dividends and amounts distributable upon liquidation,
dissolution and winding up), given in person or by proxy, either
in writing or by a vote at a meeting called for the purpose, at
which the holders of shares of Series B Preferred Stock and such
other series of Preferred Stock shall vote together as a single
class without regard to series, shall be necessary for
authorizing, effecting or validating the amendment, alteration or
repeal of any of the provisions of the Articles of Incorporation
or of any certificate amendatory thereof or supplemental thereto
(including any Certificate of Designations, Preferences and
Rights or any similar document relating to any series of
Preferred Stock) which would materially adversely affect the
preferences, rights, powers or privileges of the Series B
Preferred Stock; provided, however, that the amendment of the
provisions of the Articles of Incorporation so as to authorize or
create, or to increase the authorized amount of, any Junior Stock
or any shares of any class ranking on a parity with the Series B
Preferred Stock shall not be deemed to materially adversely
affect the preferences, rights, powers or privileges of Series B
Preferred Stock.
(c). Unless the affirmative vote or consent of the holders of a
greater number of shares shall then be required by law, the
consent of the holders of at least 66 2/3% of all of the
outstanding shares of Series B Preferred Stock (in addition to
any vote required by the terms of any other series of Preferred
Stock ranking on a parity with the Series B Preferred Stock as to
dividends and amounts distributable upon liquidation, dissolution
or winding up), given in person or by proxy, either in writing or
by a vote at a meeting called for the purpose at which the
holders of shares of Series B Preferred Stock and such other
series of Preferred Stock shall vote together as a single class
without regard to series, shall be necessary for authorizing,
effecting or validating the creation, authorization or issue of
any shares of any class of stock of the Corporation ranking prior
to the Series B Preferred Stock as to dividends or upon
liquidation, dissolution or winding up, or the reclassification
of any authorized stock of the Corporation into any such prior
shares, or the creation, authorization or issuance of any
obligation or security convertible into or evidencing the right
to purchase any such prior shares.
(d). For purposes of the provisions of Sections 10.(b). and 10.(c),
each share of Series B Preferred Stock shall have one (1) vote
per share.
(e). Except as set forth herein, holders of Series B Preferred Stock
shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with
holders of Common Stock as set forth herein) for taking any
corporate action.
11. Record Holders.
The Corporation and the Transfer Agent may deem and treat the record
holder of any shares of Series B Preferred Stock as the true and
lawful owner thereof for all purposes, and neither the Corporation nor
the Transfer Agent shall be affected by any notice to the contrary.
Article V.
The corporate office shall be in Hartford or in such other town in Connecticut
as the Board of Directors may determine. The annual meeting of the shareholders
shall be held at such time and place within the state and upon such notice as
may be determined from time to time either by or in accordance with the bylaws.
At all meetings of the shareholders and subject, in the case of preferred
shareholders, to such provisions concerning voting rights as the Board of
Directors may determine pursuant to the authority granted in Article III hereof,
each shareholder shall be entitled to vote in person or by an attorney duly
authorized by a written proxy and each share of common stock represented at the
meeting shall be entitled to one vote.
Article VI.
The business property and affairs of the Corporation shall be managed by or
under the direction of a Board of Directors consisting of the number of
directors fixed from time to time by resolution adopted by the affirmative vote
of a majority of the entire Board of Directors. The directors shall be divided
into three classes, designated Class I, Class II and Class III. Each class shall
consist, as nearly as may be possible, of one-third of the total number of
directors constituting the entire Board of Directors. The directors initially
elected to Class I shall serve for a term expiring at the annual meeting of
shareholders next following the end of the calendar year 1997, the directors
initially elected to Class II shall serve for a terms expiring at the annual
meeting of shareholders next following the end of the calendar year 1998 and the
directors initially elected to the third class shall serve for a term expiring
at the annual meeting of shareholders next following the end of the calendar
year 1998. At each annual meeting of shareholders, successors to the class of
directors whose term expires at the annual meeting shall be elected for a
three-year term. If the number of directors is changed, any increase or decrease
shall be apportioned among the classes so as to maintain the number of directors
in each class as nearly equal as possible, and any additional director of any
class elected to fill a vacancy resulting from an increase in such class shall
hold office for a term that shall coincide with the remaining term of that
class, but in no case will a reduction of the number of directors remove any
director in office or shorten the term of any incumbent director. A director
shall hold office until the annual meeting for the year in which his term
expires and until his successor shall be elected and shall qualify, subject,
however, to prior death, resignation, removal from office or order of court
that, by reason of incompetency or any other lawful cause, he is no longer a
director in office.
Any vacancy on the Board of Directors that results from an increase in the
number of directors may be filled by the concurring vote of directors holding a
majority of the directorships, which number of directorships shall be the number
prior to the vote on the increase, and any other vacancy occurring in the Board
of Directors may be filled by concurring vote of a majority of the remaining
directors then in office, although less than a quorum, or by a sole remaining
director. Any director elected to fill a vacancy not resulting from an increase
in the number of directors shall have the same remaining term as that of his
predecessor.
Any director or the entire Board of Directors may be removed only for cause by
the affirmative vote of eighty percent (80%) of the votes entitled to be cast by
the holders of all then outstanding shares of voting stock of the Corporation,
voting together as a single class. For the purposes of this Article 6, "cause"
shall be defined as (a) a final non-appealable order of conviction of a felony
involving moral turpitude by a court of competent jurisdiction in the United
States or (b) a final non-appealable order of a court of competent jurisdiction
in the United States finding gross negligence in the performance of duties as a
director or officer of the Corporation.
Notwithstanding the foregoing, whenever the holders of any one or more classes
or series of preferred stock issued by the Corporation shall have the right,
voting separately by class or series, to elect directors at an annual or special
meeting of shareholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of these
Articles applicable thereto, and such directors so elected shall not be divided
into classes pursuant to this Article VI unless expressly provided by such term.
Notwithstanding any other provisions of these Articles or the bylaws of the
Corporation (and notwithstanding the fact that a lesser percentage or separate
class vote may be specified by law, these Articles or the bylaws of the
Corporation) the affirmative vote of the holders of not less than eighty percent
(80%) of the votes entitled to be cast by the holders of all then outstanding
shares of voting stock of the Corporation, voting together as a single class,
shall be required to amend or repeal, or adopt any provisions inconsistent with
this Article VI; provided, however, that this paragraph shall not apply to, and
such eighty percent (80%) vote shall not be required for any amendment, repeal
or adoption recommended by three-quarters of the entire Board if all of such
directors are persons who were members of the Board at the annual meeting of
shareholders of the Corporation held prior to the proposal of any such
amendment, repeal or adoption or persons nominated by such members.
Article VII.
A. In addition to any affirmative vote required by law or these Articles or
the bylaws of the Corporation, and except as otherwise expressly provided
in Section B of this Article VII, a Business Combination (as
hereinafter defined) shall require the affirmative vote of not less than
eighty percent (80%) of the votes entitled to be cast by the holders of
all then outstanding shares of Voting Stock (as hereinafter defined),
voting together as a single class. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage or separate class vote may be specified, by law or in any
agreement with any national securities exchange or otherwise.
B. The provisions of Section A of this Article VII shall not be applicable to
any particular Business Combination, and such Business Combination shall
require only such affirmative vote, if any, as is required by law or by any
other provision of these Articles or the bylaws of the Corporation, or any
agreement with any national securities exchange, if all of the conditions
specified in either of the following Paragraphs 1 or 2 are met:
1. The Business Combination shall have been approved by two-thirds (whether
such approval is made prior to or subsequent to the acquisition of
beneficial ownership of the Voting Stock that caused the Interested
Shareholder, as hereinafter defined to become an Interested Shareholder)
of the Continuing Directors, as hereinafter defined.
2. All of the following conditions shall have been met:
(a). The aggregate amount of cash and the Fair Market Value (as
hereinafter defined) as of the date of the consummation of the
Business Combination of consideration other than cash to be
received per share by holders of Common Stock in such Business
Combination shall be at least equal to the highest amount
determined under clauses (i), (ii), (iii) and (iv) below:
(i) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by or on behalf of the Interested Shareholder for
any share of Common Stock in connection with the acquisition by
the Interested Shareholder of beneficial ownership of shares of
Common Stock within the two-year period immediately prior to
the first public announcement of the proposed Business
Combination (the "Announcement Date");
(ii)the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested
Shareholder became an Interested Shareholder (the
"Determination Date"), whichever is higher;
(iii)(if applicable) the price per share equal to the Fair Market
Value per share of Common Stock determined pursuant to the
immediately preceding clause (ii), multiplied by the ratio of
(x) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid
by or on behalf of the Interested Shareholder for any share of
Common Stock in connection with the acquisition by the
Interested Shareholder of beneficial ownership of shares of
Common Stock within the two-year period immediately prior to
the Announcement Date to (y) the Fair Market Value per share
of Common Stock on the first day in such two-year period on
which the Interested Shareholder acquired beneficial ownership
of any share of Common Stock; and
(iv) The Corporation's net income per share of Common Stock for the
four full consecutive fiscal quarters immediately preceding
the Announcement Date, multiplied by the higher of the then
price/earnings multiple (if any) with respect to common stock
of such Interested Shareholder or the highest price/earnings
multiple with respect to Common Stock within the two-year
period immediately preceding the Announcement Date (such
price/earnings multiples being determined as customarily
computed and reported in the financial community);
(b). The aggregate amount of cash and the Fair Market Value as of the
date of the consummation of the Business Combination of
consideration other than cash to be received per share by holders
of shares of any class or series of outstanding Capital Stock (as
hereinafter defined), other than Common Stock, shall be at least
equal to the highest amount determined under clauses (i), (ii),
(iii) and (iv) below:
(i) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by or on behalf of the Interested Shareholder for
any share of such class or series of Capital Stock in
connection with the acquisition by the Interested Shareholder
within the two-year period immediately prior to the
Announcement Date;
(ii) the Fair Market Value per share of such class or series of
Capital Stock on the Announcement Date or on the Determination
Date, whichever is higher;
(iii) (if applicable) the price per share equal to the Fair Market
Value per share of such class or series of Capital Stock
determined pursuant to the immediately preceding clause (ii),
multiplied by the ratio of (x) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by or on behalf of the Interested
Shareholder for any share of such class or series of the Capital
Stock in connection with the acquisition by the Interested
Shareholder of beneficial ownership of shares of such class or
series of Capital Stock within the two-year period immediately
prior to the Announcement Date to (y) the Fair Market Value per
share of such class or series of Capital Stock on the first day
in such two-year period on which the Interested Shareholder
acquired beneficial ownership of any share of such class or
series of Capital Stock; and
(iv) (if applicable) the highest preferential amount per share to
which the holders of shares of such class or series of Capital
Stock would be entitled in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
affairs of the Corporation, regardless of whether the Business
Combination to be consummated constitutes such an event.
The provision of this paragraph 2.(b) shall be required to be met
with respect to every class or series of outstanding Capital Stock,
whether or not the Interested Shareholder has previously acquired
beneficial ownership of any shares of a particular class or series of
Capital Stock.
(c). The consideration to be received by holders of a particular class
or series of outstanding Capital Stock shall be in cash or in the
same form as previously has been paid by or on behalf of the
Interested Shareholder in connection with its direct or indirect
acquisition of beneficial ownership of shares of such class or
series of Capital Stock. If the consideration so paid for shares
of any class or series of Capital Stock varied as to form, the
form of consideration for such class or series of Capital Stock
shall be either cash or the form used to acquire beneficial
ownership of the largest number of shares of such class or series
of Capital Stock previously acquired by the Interested
Shareholder.
(d). After such Interested Shareholder has become an Interested
Shareholder and prior to the consummation of such Business
Combination: (i) except as approved by two-thirds of the
Continuing Directors, there shall have been no failure to declare
and pay at the regular date therefor any full quarterly dividends
(whether or not cumulative) payable in accordance with the terms
of any outstanding Capital Stock; (ii) there shall have been no
reduction in the annual rate of dividends paid on the Common
Stock (except as necessary to reflect any stock split, stock
dividend or subdivision of the Common Stock), except as approved
by two-thirds of the Continuing Directors; (iii) there shall have
been an increase in the annual rate of dividends paid on the
Common Stock as necessary to reflect fully any reclassification
(including any reverse stock split), recapitalization,
reorganization or any similar transaction that has the effect of
reducing the number of outstanding shares of Common Stock, unless
the failure so to increase such annual rate is approved by
two-thirds of the Continuing Directors; and (iv) such Interested
Shareholder shall not have become the beneficial owner of any
additional shares of Capital Stock except as part of the
transaction that results in such Interested Shareholder becoming
an Interested Shareholder and except in a transaction that, after
giving effect thereto, would not result in any increase in the
Interested Shareholder's percentage beneficial ownership of any
class or series of Capital Stock.
(e). After such Interested Shareholder has become an Interested
Shareholder, such Interested Shareholder shall not have received
the benefit, directly or indirectly (except proportionately as a
shareholder of this Corporation), of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided by this Corporation,
whether in anticipation of or in connection with such Business
Combination or otherwise.
(f). A proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities
Exchange Act of 1934 and the rules and regulations thereunder
(the "Act") (or any subsequent provisions replacing such Act,
rules and regulations) or the insurance laws and regulations of
the State of Connecticut, if applicable, shall be mailed to all
shareholders of the Corporation at least 30 days prior to the
consummation of such Business Combination (whether or not such
proxy or information statement is required by law to be mailed).
The proxy or information statement shall contain on the first
page thereof, in a prominent place, any statement as to the
advisability (or inadvisability) of the Business Combination that
the Continuing Directors, or any of them, may choose to make and,
if deemed advisable by a majority of the Continuing Directors,
the opinion of an investment banking firm selected by a majority
of the Continuing Directors as to the fairness (or not) of the
terms of the Business Combination from a financial point of view
to the holders of the outstanding shares of Capital Stock other
than the Interested Shareholder and its Affiliates or Associates
(as hereinafter defined), such investment banking firm to be paid
a reasonable fee for its services by the Corporation.
C. For the purposes of this Article VII:
1. The term "Business Combination" shall mean:
(a). any merger or consolidation of the Corporation or any Subsidiary
(as hereinafter defined) with (i) any Interested Shareholder or
(ii) any other corporation (whether or not itself an Interested
Shareholder) which is or after such merger or consolidation would
be an Affiliate or Associate of an Interested Shareholder; or
(b). any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) with
any Interested Shareholder or any Affiliate or Associate of any
Interested Shareholder involving any assets or securities of this
Corporation, any subsidiary or any Interested Shareholder or any
Affiliate or Associate of any Interested Shareholder having an
aggregate Fair Market Value of $10,000,000 or more; or
(c). the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an
Interested Shareholder or any Affiliate or Associate of any
Interested Shareholder; or
(d). any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or
any other transaction (whether or not with or otherwise involving
an Interested Shareholder) that has the effect, directly or
indirectly, of increasing the proportionate share of any class or
series of Capital Stock, or any securities convertible into
Capital Stock or into equity securities of any Subsidiary, that
is beneficially owned by any Interested Shareholder or any
Affiliate or Associate of any Interested Shareholder: or
(e). any agreement, contract or other arrangement providing for any
one or more of the actions specified in the foregoing clauses (a)
to (d).
2. The term "Capital Stock" shall mean all stock of the Corporation
authorized to be issued from time to time under Article III of these
Articles, and the term "Voting Stock" shall mean all Capital Stock
which by its terms may be voted on all matters submitted to
shareholders of the Corporation generally.
3. The term "person" shall mean any individual, firm, corporation or other
entity and shall include any group comprised of any person and any
other person with whom such person or any Affiliate or Associate of
such person has any agreement, arrangement or understanding, directly
or indirectly, for the purpose of acquiring, holding, voting or
disposing of Capital Stock.
4. The term "Interested Shareholder" shall mean any person (other than
the Corporation or any Subsidiary and other than any profit-sharing,
employee stock ownership or other employee benefit plan of the
Corporation or any Subsidiary or any trustee of or fiduciary with
respect to any such plan when acting in such capacity) who (a) is the
beneficial owner of Voting Stock representing ten percent (10%) or
more of the votes entitled to be cast by the holders of all then
outstanding shares of Voting Stock or (b) is an Affiliate or Associate
of the Corporation and at any time within the two-year period
immediately prior to the date in question was the beneficial owner of
Voting Stock representing ten percent (10%) or more of the votes
entitled to be cast by the holders of all then outstanding shares of
Voting Stock.
5. A person shall be a "beneficial owner" of any Capital Stock (a) which
such person or any of its Affiliates or Associates beneficially owns,
directly or indirectly; (b) which such person or any of its Affiliates
or Associates has, directly or indirectly, (i) the right to acquire
(whether such right is exercisable immediately or subject only to the
passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, convertible
securities, exchange rights, warrants or options, or otherwise, or
(ii) the right to vote pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, convertible
securities, exchange rights, warrants or options, or otherwise, or
(ii) the right to vote pursuant to any agreement, arrangement or
understanding; or (c) which are beneficially owned, directly or
indirectly, by any other person with which such person or any of its
Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of any shares of Capital Stock. For the purposes of
determining whether a person is an Interested Shareholder pursuant to
paragraph 4 of this Section C, the number of shares of Capital Stock
deemed to be outstanding shall include shares deemed beneficially
owned by such person through application of paragraph 5 of this
Section C, but shall not include any other shares of Capital Stock
that may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or
options, or otherwise.
6. The terms "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 under the Act as in
effect on March 1, 1984 (the term "registrant" in said Rule 12b-2
meaning in this case the Corporation).
7. The term "Subsidiary" means any corporation of which a majority of any
class of equity security is beneficially owned by the Corporation;
provided, however, that for the purposes of the definition of
Interested Shareholder set forth in paragraph 4 of this Section C, the
term "Subsidiary" shall mean only a corporation of which a majority of
each class of equity security is beneficially owned by the
Corporation.
8. The term "Continuing Director" means any member of the board of
directors of the Corporation (the "Board") while such person is a
member of the Board, who is not an Affiliate or Associate or
representative of the Interested Shareholder and was a Member of the
Board prior to the time that the Interested Shareholder became an
Interested Shareholder, and any successor of a Continuing Director,
while such successor is a member of the Board, who is not an Affiliate
or Associate or representative of the Interested Shareholder and is
recommended or elected to succeed the Continuing Director by a
majority of Continuing Directors.
9. The term "Fair Market Value" means (a) in the case of cash, the amount
of such cash; (b) in the case of stock, the highest closing sales
price during the 30-day period immediately preceding the date in
question of a share of such stock on the Composite Tape for New York
Stock Exchange-Listed Stocks, or, if such stock is not quoted on the
Composite Tape, on the New York Stock Exchange, or if such stock is
not listed on such Exchange, on the principal United States securities
exchange registered under the Act on which such stock is listed, or,
if such stock is not listed on any such exchange, the highest closing
bid quotation with respect to a share of such stock as determined by a
majority of the Continuing Directors in good faith; and (c) in the
case of property other than cash or stock, the fair market value of
such property on the date in question as determined in good faith by a
majority of the Continuing Directors.
10. In the event of any Business Combination in which this Corporation
survives, the phrase "consideration other than cash to be received" as
used in paragraphs 2.(a) and 2.(b) of Section B of this Article VII
shall include the shares of Common Stock and/or the shares of any
other class or series of Capital Stock retained by the holders of such
shares.
D. The Board of Directors shall have the power and duty to determine for the
purposes of this Article VII on the basis of information known to them
after reasonable inquiry, (a) whether a person is an Interested
Shareholder, (b) the number of shares of Capital Stock or other
securities beneficially owned by any person, (c) whether a person is an
Affiliate or Associate of another, and (d) whether the assets that are
the subject of any Business Combination have, or the consideration to
be received for the issuance or transfer of securities by this
Corporation have, or any Subsidiary in any Business Combination has,
an aggregate Fair Market Value of $10,000,000 or more. Any such
determination made in good faith shall be binding and conclusive on
all parties.
E. Nothing contained in this Article VII shall be construed to relieve
any Interested Shareholder from any fiduciary obligation imposed by law.
F. The fact that any Business Combination complies with the provisions of
Section B of this Article VII shall not be construed to impose any
fiduciary duty, obligation or responsibility on the Board, or any
member thereof, to approve such Business Combination or recommend its
adoption or approval to the shareholders of this Corporation, nor shall
such compliance limit, prohibit or otherwise restrict in any manner the
Board, or any member thereof, with respect to evaluations of or actions
and responses taken with respect to such Business Combination.
G. Notwithstanding any other provisions of these Articles or the Bylaws of the
Corporation (and notwithstanding the fact that a lesser percentage or
separate class vote may be specified by law, these Articles or the bylaws
of the Corporation), the affirmative vote of the holders of not less than
eighty percent (80%) of the votes entitled to be cast by the holders of all
then outstanding shares of Voting Stock, voting together as a single class,
shall be required to amend or repeal, or adopt any provisions inconsistent
with, this Article VII; provided, however, that this Section G shall not
apply to, and such eighty percent (80%) vote shall not be required for, any
amendment, repeal or adoption unanimously recommended by the Board if all
of such directors are persons who would be eligible to serve as Continuing
Directors within the meaning of Section C, paragraph 8 of this Article VII.
Article VIII.
To the full extent permitted by the Connecticut General Statutes as the same
exists or may hereafter be amended, no person who is or was a director of the
Corporation shall be personally liable to the Corporation or its shareholders
for monetary damages for breach of duty as a director in an amount that exceeds
the compensation received by the director for serving the Corporation during the
year of the violation. The limitation of liability of any person who is or was a
director provided for in this Article shall not be exclusive of any other
limitation or elimination of liability contained in, or pursuant to, the
Connecticut General Statutes, as the same exists or may hereafter be amended.
Any repeal or modification of this Article VIII by the shareholders of the
Corporation shall not adversely affect any right or protection of a director of
the Corporation existing at the time of such repeal or modification.
Article IX.
The officers and directors of the Corporation shall be indemnified by the
Corporation to the fullest extent permitted by, or pursuant to, the Connecticut
General Statutes, as the same exists or may hereafter be amended. The
Corporation may pay for or reimburse the reasonable expenses incurred by a
director who is a party to a proceeding in advance of final disposition of the
proceeding if such director is in full compliance with Section 33-773 of the
Connecticut Business Corporation Act, as the same exists or may hereafter be
amended. Any repeal or modification of this Article IX shall not adversely
affect any right or protection of a director or officer of the Corporation
existing at the time of such repeal or modification.
<PAGE>
APPENDIX E
AMENDMENT AND RESTATEMENT TO THE 1995 STOCK OPTION PLAN
RESOLVED, that the following amendment shall be made to The Hartford
Steam Boiler Inspection and Insurance Company 1995 Stock Option Plan
(the "plan"), subject to approval by the holders of a majority of the
shares voting at the stockholders' Annual Meeting scheduled to be held
on April 24, 1997 [amendment is underlined]:
The first sentence of Section 1.5(a) of the plan shall be amended effective
April 24, 1997 to read as follows:
The maximum number of shares which may be optioned or awarded under the plan
shall be 1,850,000 shares of Stock.
---------
RESOLVED, that the plan be restated to reflect the above amendment.
<PAGE>
Appendix F
As amended and restated
effective 4/24/97
THE HARTFORD STEAM BOILER INSPECTION
AND INSURANCE COMPANY
1995 STOCK OPTION PLAN
ARTICLE I - PLAN ADMINISTRATION AND ELIGIBILITY
1.1 Purpose of Plan
The purpose of the 1995 Stock Option Plan is to attract and retain
persons of ability as employees of the Company and its Subsidiaries and
to motivate such employees to exert their best efforts to contribute to
the long-term growth of the Company by encouraging ownership in the
Company. The Plan is further designed to promote a closer identity of
interest between key employees and the Company's shareholders.
1.2 Definitions
(a) "Appreciation" shall mean the excess of the Fair Market Value of
a share over the specified option price per share multiplied by
the number of shares subject to the option or portion thereof
which is surrendered.
(b) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(c) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
under the Exchange Act.
(d) "Beneficiary" shall mean the legal representative of the estate
of a deceased Optionee or the person or persons who shall acquire
the right to exercise an option or Stock Appreciation Right by
bequest or inheritance or by reason of the death of the Optionee.
In the case where a Participant's right to shares of Restricted
Stock vest as provided in Section 2.5(d) on or prior to the
Participant's date of death, the term "Beneficiary" shall also
mean the legal representative of the estate of the Participant or
the person or persons who shall acquire the right to such vested
shares of Stock by bequest or inheritance or by reason of the
death of such Participant. (e) "Board" shall mean the Board of
Directors of the Company.
(f) "Change in Control" shall be deemed to have occurred if the
events set forth in any one of the following paragraphs shall
have occurred:
(I) any Person is or becomes the Beneficial Owner, directly
or indirectly, of securities of the Company (not
including in the securities beneficially owned by such
Person any securities acquired directly from the
Company or its affiliates) representing 25% or more of
the combined voting power of the Company's then
outstanding securities, excluding any Person who
becomes such a Beneficial Owner in connection with a
transaction described in clause (i) of paragraph (III)
below; or
(II) the following individuals cease for any reason to
constitute a majority of the number of directors then
serving: individuals who, on December 23, 1996,
constitute the Board and any new director (other than a
director whose initial assumption of office is in
connection with an actual or threatened election
contest, including but not limited to a consent
solicitation, relating to the election of directors of
the Company) whose appointment or election by the Board
or nomination for election by the Company's
shareholders was approved or recommended by a vote of
at least two-thirds (2/3) of the directors then still
in office who either were directors on December 23,
1996 or whose appointment, election or nomination for
election was previously so approved or recommended; or
(III) there is consummated a merger or consolidation of the
Company or any direct or indirect subsidiary of the
Company with any other corporation, other than (i) a
merger or consolidation which would result in the
voting securities of the Company outstanding
immediately prior to such merger or consolidation
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving entity or any parent
thereof), in combination with the ownership of any
trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any subsidiary
of the Company, at least 60% of the combined voting
power of the securities of the Company or such
surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (ii)
a merger or consolidation effected to implement a
recapitalization of the Company (or similar
transaction) in which no Person is or becomes the
Beneficial Owner, directly or indirectly, of securities
of the Company (not including in the securities
Beneficially Owned by such Person any securities
acquired directly from the Company or its Affiliates)
representing 25% or more of the combined voting power
of the Company's then outstanding securities; or
(IV) the shareholders of the Company approve a plan of
complete liquidation or dissolution of the Company or
there is consummated an agreement for the sale or
disposition by the Company of all or substantially all
of the Company's assets, other than a sale or
disposition by the Company of all or substantially all
of the Company's assets to an entity, at least 60% of
the combined voting power of the voting securities of
which are owned by shareholders of the Company in
substantially the same proportions as their ownership
of the Company immediately prior to such sale.
Notwithstanding the foregoing, a "Change in Control"
shall not be deemed to have occurred by virtue of the
consummation of any transaction or series of integrated
transactions immediately following which the record holders of
the common stock of the Company immediately prior to such
transaction or series of transactions continue to have
substantially the same proportionate ownership in an entity
which owns all or substantially all of the assets of the
Company immediately following such transaction or series of
transactions.
(g) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(h) "Committee" shall mean the Human Resources Committee of the Board
or any future committee of the Board performing similar
functions.
(i) "Company" shall mean The Hartford Steam Boiler Inspection and
Insurance Company and, except in determining under Section 1.2(f)
hereof whether or not any Change in Control of the Company has
occurred, shall include any successor to its business and/or
assets which assumes this Plan by operation of law, or otherwise.
(j) "Disability" shall mean any condition which would entitle an
employee of the Company or a Subsidiary to receive benefits under
the Company's Long-Term Disability Plan or any long-term
disability plan maintained by the Subsidiary.
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(l) "Fair Market Value" shall mean the average of the high and low
prices per share of the Company's Stock as reported by the New
York Stock Exchange Composite Transaction Reporting System (NYSE)
on the date for which the Fair Market Value is being determined,
or if no quotations are available for the Company's Stock, for
the next preceding date for which such a quotation is available.
If shares of Company Stock are not then listed on the NYSE, Fair
Market Value shall be reasonably determined by the Committee, in
its sole discretion.
(m) "Incentive Stock Option" shall mean an option described in
Section 422 of the Code.
(n) "Nonstatutory Stock Option" shall mean an option which does not
qualify as an Incentive Stock Option under Section 422 of the
Code.
(o) "Optionee" shall mean an employee of the Company or a Subsidiary
to whom an option is granted.
(p) "Participant" shall mean an employee of the Company or a
Subsidiary to whom an option is granted or to whom Restricted
Stock is awarded.
(q) "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d)
thereof, except that such term shall not include (i) the Company
or any of its subsidiaries, (ii) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company
or any of its Affiliates, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or
(iv) a corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions
as their ownership of stock of the Company.
(r) "Plan" shall mean The Hartford Steam Boiler Inspection and
Insurance Company 1995 Stock Option Plan, as amended.
(s) "Restricted Stock" shall mean one or more shares of Stock awarded
to an eligible employee under Section 2.5 of the Plan and subject
to the terms and conditions set forth in Section 2.5.
(t) "Retirement" shall mean the termination of employment under
circumstances which entitle an employee to receive retirement
benefits under the Company's Employees' Retirement Plan or any
Subsidiary's retirement plan.
(u) "Stock" shall mean the Common Stock of the Company.
(v) "Stock Appreciation Right" shall mean a right to surrender to the
Company all or any portion of an option and, as determined by the
Committee, to receive in exchange therefor cash or whole shares
of Stock (valued at current Fair Market Value) or a combination
thereof having an aggregate value equal to the excess of the
current Fair Market Value of one (1) share over the option price
of one (1) share specified in such option grant multiplied by the
number of shares subject to such option or the portion thereof
which is surrendered.
(w) "Subsidiary" shall mean any corporation of which at least 50% of
the voting stock is owned by the Company and/or one or more of
the Company's other Subsidiaries.
1.3 Administration
The Plan shall be administered by the Committee as defined herein. No
member of the Committee shall be eligible to be granted an option under
the Plan. Each member of the Committee shall be a "disinterested
director" within the meaning of Rule 16b-3 of the General Rules and
Regulations promulgated under the Exchange Act and an "outside
director" within the meaning of Section 162(m) of the Code. The
Committee shall have the responsibility of interpreting the Plan and
establishing and amending such rules and regulations necessary or
appropriate for the administration of the Plan or for the continued
qualification of any Incentive Stock Options granted hereunder. In
addition, the Committee shall have the authority to designate the
employees who shall be granted options and awarded Restricted Stock
under the Plan and the amount and nature of the options, related rights
and awards to be granted to each such employee. All interpretations of
the Plan or of any options, related rights or awards issued under it
made by the Committee shall be final and binding upon all persons
having an interest in the Plan. No member of the Committee shall be
liable for any action or determination taken or made in good faith with
respect to this Plan or any option granted hereunder.
1.4 Eligibility
Executive and middle management employees of the Company or its
Subsidiaries shall be eligible to receive grants of stock options and
awards of Restricted Stock under the Plan.
1.5 Stock Subject to the Plan
(a) The maximum number of shares which may be optioned or awarded
under the Plan shall be 1,850,000 shares of Stock. Preferred
Stock may be used in lieu of grants of Stock under the Plan
subject to further authorization of the Board of the Company.
Notwithstanding the foregoing, in no event shall the Committee
grant any Participant Incentive Stock Options, Nonstatutory Stock
Options, Stock Appreciation Rights or Restricted Stock in any
single calendar year for more than 100,000 shares of Stock. The
limitation on the number of shares which may be optioned or
awarded under the Plan or to an individual Participant shall be
subject to adjustment under Section 3.2 of this Plan.
(b) If any outstanding option under the Plan for any reason expires,
lapses or is terminated, the shares of the Stock which were
subject to such option shall be restored to the total number of
shares available for grant pursuant to the Plan. Shares as to
which there is a surrender in whole or in part of an option upon
the exercise of a Stock Appreciation Right shall not again be
available for grant pursuant to the Plan. Stock delivered upon
the exercise of a Stock Appreciation Right shall not be charged
against the number of shares of Stock available for the grant of
options.
(c) Upon the exercise of an option or a Stock Appreciation Right, or
payment of a Restricted Stock award, the Company may distribute
newly issued shares, or shares previously repurchased on
behalf of the Company through a broker or other independent
agent designated by the Committee. Such repurchases shall be
subject to such rules and procedures as the Committee may
establish hereunder and shall be consistent with such
conditions as may be prescribed from time to time by law or
by the Securities and Exchange Commission ("SEC") in any rule or
regulation or in any exemptive order or no-action letter issued
by the SEC to the Company or the broker with respect to the
making of such purchase or otherwise.
<PAGE>
ARTICLE II - OPTIONS, STOCK APPRECIATION RIGHTS AND RESTRICTED STOCK
2.1 Granting of Options
The Committee may grant Incentive Stock Options (ISOs), Nonstatutory
Stock Options or any combination thereof, provided that the aggregate
Fair Market Value (determined at the time the option is granted) of the
shares of Stock with respect to which ISOs are exercisable for the
first time by an employee during any calendar year (under this Plan and
any other option plan of the Company or its Subsidiaries) shall not
exceed $100,000. No such maximum limitation shall apply to Nonstatutory
Stock Options.
2.2 Terms and Conditions of Options
Each option granted under the Plan shall be authorized by the Committee
and shall be evidenced by an instrument delivered to the Participant,
in a form approved by the Committee, containing the following terms and
conditions and such other terms and conditions as the Committee may
deem appropriate.
(a) Option Term - Each option shall specify the term for which the
option thereunder is granted and shall provide that the option
shall expire at the end of such term. In no event shall any
option be exercisable any earlier than one year after the date
of such grant. The Committee shall have authority to grant
options exercisable in cumulative or non-cumulative
installments. No option shall be exercisable after the
expiration of ten years from the date upon which such option
is granted. Notwithstanding anything to the contrary contained
herein, in the event of a Change in Control, all outstanding
options shall immediately become exercisable.
(b) Option Price - The option price per share shall be determined
by the Committee at the time an option is granted, and shall
not be less than the Fair Market Value of one share of Stock
on the date the option is granted.
(c) Exercise of Option -
(1) Options may be exercised only by written notice to the
Company accompanied by the proper amount of payment for
the shares.
(2) The Committee may postpone any exercise of an option or
a Stock Appreciation Right or the delivery of Stock
following the lapse of certain restrictions with
respect to awards of Restricted Stock for such time as
the Committee in its discretion may deem necessary, in
order to permit the Company with reasonable diligence
(i) to effect or maintain registration of the Plan or
the shares issuable upon the exercise of the option or
the Stock Appreciation Right or the lapse of certain
restrictions respecting awards of Restricted Stock
under the Securities Act of 1933, as amended, or the
securities laws of any applicable jurisdiction, or (ii)
to determine that such shares and Plan are exempt from
such registration; the Company shall not be obligated
by virtue of any option or any provision of the Plan to
recognize the exercise of an option or the exercise of
a Stock Appreciation Right or the lapse of certain
restrictions respecting awards of Restricted Stock to
sell or issue shares in violation of said Act or of the
law of the government having jurisdiction thereof. Any
such postponement shall not extend the term of an
option; neither the Company nor its directors or
officers shall have any obligation or liability to the
Optionee of an option or Stock Appreciation Right, or
to the Optionee's Beneficiary with respect to any
shares as to which the option or Stock Appreciation
Right shall lapse because of such postponement.
(3) To the extent an option is not exercised for the total
number of shares with respect to which such options
become exercisable, the number of unexercised shares
shall accumulate and the option shall be exercisable,
to such extent, at any time thereafter, but in no event
later than ten years from the date the option was
granted or after the expiration of such shorter period
(if any) which the Committee may have established with
respect to such option pursuant to Subsection (a) of
this Section 2.2.
(d) Payment of Purchase Upon Exercise - Payment for the shares as
to which an option is exercised shall be made in one of the
following ways:
(1) payment in cash of the full option price of the shares
purchased;
(2) if permitted by the Committee, the delivery of Stock of
the Company held by the purchaser for at least six
months accompanied by the certificates therefor
registered in the name of such purchaser and properly
endorsed for transfer, having a Fair Market Value (as
of the date of exercise) equal to the full option
price; or
(3) if permitted by the Committee, a combination of cash
and Stock (as described in (2) above) such that the sum
of the amount of cash and the Fair Market Value of the
Stock (as of the date of exercise) is equal to the full
option price.
(e) Nontransferability - No option granted under the Plan shall be
transferable other than by will or by the laws of descent and
distribution subject to Section 2.4 hereunder, unless the
Committee shall permit (on such terms and conditions as it shall
establish) such option to be transferred to a member of the
Participant's immediate family or to a trust or similar vehicle
for the benefit of such immediate family members, or to an
"alternate participant" pursuant to a Qualified Domestic
Relations Order as defined in the Code. During the lifetime of an
Optionee, an option shall be exercisable only by such Optionee,
or if applicable, a transferee. For purposes of Section 2.4
hereunder, a transferred option may be exercised by the
transferee to the extent that the Participant would have been
entitled had the option not been transferred.
(f) Laws and Regulations - The Committee shall have the right to
condition any issuance of shares to any Optionee or Participant
hereunder upon such Optionee's or Participant's undertaking in
writing to comply with such restrictions on the subsequent
disposition of such shares as the Committee shall deem necessary
or advisable as a result of any applicable law or regulation. In
the case of Stock issued or cash paid upon exercise of options or
associated Stock Appreciation Rights, or the lapse of
restrictions with respect to Restricted Stock awarded to a
Participant under the Plan, the Optionee, Participant or other
person receiving such Stock or cash shall be required to pay to
the Company or a Subsidiary the amount of any taxes which the
Company or Subsidiary is required to withhold with respect to
such Stock or cash. The Company or a Subsidiary may, in its sole
discretion, permit an Optionee or Participant or other person
receiving such Stock or cash to satisfy any Federal, state or
local (if any) tax withholding requirements, in whole or in part
by (i) delivering to the Company or subsidiary shares of Stock
held by such Optionee, Participant or other person having a Fair
Market Value equal to the amount of the tax or (ii) directing the
Company or Subsidiary to retain Stock otherwise issuable to the
Optionee, Participant or other person under the Plan having a
Fair Market Value equal to the amount of the tax. If Stock is
used to satisfy tax withholding, such Stock shall be valued based
on the Fair Market Value when the tax withholding is required to
be made.
(g) Modification - The Committee shall have authority to modify an
option without the consent of the Optionee, provided that such
modification does not affect the exercise price or otherwise
materially diminish the value of such option to the Optionee, and
provided further, that except in connection with an amendment to
the Plan, the Committee shall not have authority to make any
modification to any particular option that materially increases
the value of the option to the Optionee.
2.3 Stock Appreciation Rights
(a) The Committee may, but shall not be required to, grant a Stock
Appreciation Right to the Optionee either at the time an option
is granted or by amending the option at any time during the term
of such option. A Stock Appreciation Right shall be exercisable
only during the term of the option with which it is associated.
The Stock Appreciation Right shall be an integral part of the
option with which it is associated and shall have no existence
apart therefrom. The conditions and limitations of the Stock
Appreciation Right shall be determined by the Committee and shall
be set forth in the option or amendment thereto. An amendment
granting a Stock Appreciation Right shall not be deemed to be a
grant of a new option for purposes of the Plan.
(b) A Stock Appreciation Right may be exercised by:
(1) filing with the Secretary of the Company a written election,
which election shall be delivered by the Secretary to the
Committee specifying:
(i) the option or portion thereof to be surrendered; and
(ii) the percentage of the Appreciation which the
Optionee desires to receive in cash, if any; and
(2) surrendering such option for cancellation or partial
cancellation, as the case may be, provided, however, that
any election to receive any portion of the Appreciation in
cash shall be of no force or effect unless and until the
Committee shall have consented to such election.
(c) No election to receive any portion of the Appreciation in cash
shall be filed with the Secretary and no Stock Appreciation Right
shall be exercised to receive any cash unless such election and
exercise shall occur during the period (hereinafter referred to
as the "Cash Window Period") beginning on the third business day
following the date of release for publication by the Company of a
regular quarterly or annual statement of sales and earnings and
ending on the twelfth business day following such date. The
Committee may consent to the election of a holder to receive any
portion of the Appreciation in cash at any time after such
election has been made. If such election is consented to, the
Stock Appreciation Right shall be deemed to have been exercised
during the Cash Window Period in which, or next occurring after
which, the Optionee completed all acts required of such Optionee
under the preceding paragraphs to exercise the Stock Appreciation
Right. Any Stock Appreciation Right exercised during said Cash
Window Period shall be valued and deemed exercised as of the date
during such Cash Window Period when the average of the high and
low prices for the shares of Stock as reported by the NYSE is the
highest.
2.4 Exercise of Option or Stock Appreciation Right in the Event of
Termination of Employment or Death
(a) Options and associated Stock Appreciation Rights shall terminate
immediately upon the termination of the Optionee's employment
with the Company or a Subsidiary unless the written option
instrument of such Optionee provides otherwise. The conditions
established by the Committee in the instrument for exercising
options and Stock Appreciation Rights following termination of
employment are limited by the following restrictions.
(1) If termination of employment is by reason of the death of
the Optionee, no exercise by the Optionee's Beneficiary may
occur more than two years after the Optionee's death.
(2) If termination of employment is the result of Disability or
Retirement, no exercise by the Optionee or his Beneficiary
may occur more than two years following such termination of
employment.
(3) If termination of employment is for a reason other than
death, Disability, Retirement or "involuntary termination
for cause", no exercise by the Optionee may occur more than
three months following such termination of employment. As
used herein "involuntary termination for cause" shall mean
termination of employment by reason of the Optionee's
commission of a felony, fraud or willful misconduct which
has resulted, or is likely to result, in substantial and
material damage to the Company or its Subsidiaries. Whether
an involuntary termination is for "cause" will be determined
in the sole discretion of the Committee.
(b) If the Optionee should die after termination of employment, such
termination being for a reason other than Disability, Retirement
or involuntary termination for cause, but while the option is
still exercisable, the option or associated Stock Appreciation
Right, if any, may be exercised by the Beneficiary of the
Optionee no later than one year from the date of termination of
employment of the Optionee.
(c) Under no circumstances may an option or Stock Appreciation Right
be exercised by an Optionee or Beneficiary after the expiration
of the term specified for the option.
2.5 Awarding of Restricted Stock
(a) The Committee shall from time to time in its absolute discretion
select from among the eligible employees the Participants to whom
awards of Restricted Stock shall be granted and the number of
shares subject to such awards. Each award of Restricted Stock
under the Plan shall be evidenced by an instrument delivered to
the Participant in such form as the Committee shall prescribe
from time to time in accordance with the Plan. The Restricted
Stock subject to such award shall be registered in the name of
the Participant and held in escrow by the Committee during the
Restricted Period (as defined herein).
(b) Upon the award to a Participant of shares of Restricted Stock
pursuant to Section 2.5(a), the Participant shall, subject to
Subsection (c) of this Section 2.5, possess all incidents of
ownership of such shares, including the right to receive
dividends with respect to such shares and to vote such shares.
(c) Shares of Restricted Stock awarded to a Participant may not be
sold, assigned, transferred, pledged, hypothecated or otherwise
disposed of, except by will or the laws of descent and
distribution, for a period of five years, or such shorter period
as the Committee shall determine, from the date on which the
award is granted (the "Restricted Period"). The Committee may
also impose such other restrictions and conditions on the shares
as it deems appropriate and any attempt to dispose of any such
shares of Restricted Stock in contravention of such restrictions
shall be null and void and without effect. In determining the
Restricted Period of an award, the Committee may provide that the
foregoing restrictions shall lapse with respect to specified
percentages of the awarded shares on successive anniversaries of
the date of such award. In no event shall the Restricted Period
end with respect to awarded shares prior to the satisfaction by
the Participant of any liability arising under Section 2.2(f).
(d) The restrictions described in Section 2.5(c) shall lapse upon the
completion of the Restricted Period with respect to specific
shares of Restricted Stock and the Participant's right to such
shares shall vest on such date or, if earlier, on the date that
the Participant's employment terminates on account of the death,
Disability or Retirement of the Participant. The Company shall
deliver to the Participant, or the Beneficiary of such
Participant, if applicable, within 30 days of the termination of
the Restricted Period, the number of shares of Stock that were
awarded to the Participant as Restricted Stock and with respect
to which the restrictions imposed under Section 2.5(c) have
lapsed, less any stock returned by the Company to satisfy tax
withholding pursuant to Section 2.2(f), if applicable.
(e) Except as provided in Sections 2.5(d) and (f), if the
Participant's continuous employment with the Company or a
Subsidiary shall terminate for any reason prior to the expiration
of the Restricted Period of an award, any shares remaining
subject to restrictions shall thereupon be forfeited by the
Participant and transferred to, and reacquired by, the Company or
a Subsidiary at no cost to the Company or Subsidiary.
(f) The Committee shall have the authority (and the instrument
evidencing an award of Restricted Stock may so provide) to cancel
all or any portion of any outstanding restrictions prior to the
expiration of the Restricted Period with respect to any or all of
the shares of Restricted Stock awarded to an employee hereunder
on such terms and conditions as the Committee may deem
appropriate.
(g) In the event of a Change in Control, all restrictions on any
outstanding shares of restricted stock shall lapse as of the date
of such Change in Control.
<PAGE>
ARTICLE III - GENERAL PROVISIONS
3.1 Authority
Appropriate officers of the Company designated by the Committee
are authorized to execute and deliver written instruments evidencing
awards hereunder, and amendments thereto, in the name of the Company,
as directed from time to time by the Committee.
3.2 Adjustments in the Event of Change in Common Stock of the Company
In the event of any change in the Stock of the Company by reason of any
stock dividend, stock split, recapitalization, reorganization, merger,
consolidation, split-up, combination, or exchange of shares, or rights
offering to purchase Stock at a price substantially below Fair Market
Value, or of any similar change affecting the Stock, the number and
kind of shares which thereafter may be obtained and sold under the Plan
and the number and kind of shares subject to options in outstanding
option instruments and the purchase price per share thereof and the
number of shares of Restricted Stock awarded pursuant to Section 2.5(a)
with respect to which all restrictions have not lapsed, shall be
appropriately adjusted consistent with such change in such manner as
the Board in its discretion may deem equitable to prevent substantial
dilution or enlargement of the rights granted to, or available for,
Participants in the Plan. Any fractional shares resulting from such
adjustments shall be eliminated. However, without the consent of the
Optionee, no adjustment shall be made in the terms of an ISO which
would disqualify it from treatment under Section 421(a) of the Code or
would be considered a modification, extension or renewal of an option
under Section 425(h) of the Code.
3.3 Rights of Employees
The Plan and any option or award granted under the Plan shall not
confer upon any Optionee or Participant any right with respect to
continuance of employment by the Company or any Subsidiary nor shall
they interfere in any way with the right of the Company or Subsidiary
by which an Optionee or Participant is employed to terminate his
employment at any time. The Company shall not be obligated to issue
Stock pursuant to an option or an award of Restricted Stock for which
the restrictions hereunder have lapsed if such issuance would
constitute a violation of any applicable law. No Optionee shall have
any rights as a shareholder with respect to any shares subject to
option prior to the date of issuance to such Optionee of a certificate
or certificates for such shares. Except as provided herein, no
Participant shall have any rights as a shareholder with respect to any
shares of Restricted Stock awarded to such Participant.
3.4 Amendment, Suspension and Discontinuance of the Plan
The Board may from time to time amend, suspend or discontinue the Plan,
provided that the Board may not, without shareholder approval, take any
of the following actions unless such actions fall within the provisions
of Section 3.2 herein:
(a) increase the number of shares reserved for options pursuant to
Section 1.5;
(b) alter in any way the class of persons eligible to participate in
the Plan;
(c) permit the granting of any option at an option price less than
that provided under Section 2.2(b) hereof; or
(e) extend the term of the Plan or the term during which any option
may be granted or exercised.
No amendment, suspension or discontinuance of the Plan shall impair an
Optionee's rights under an option previously granted to an Optionee
without the Optionee's consent.
3.5 Governing Law
This Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of Connecticut.
3.6 Effective Date of the Plan
The Plan as amended and restated shall be effective on April 18, 1995,
subject to the requisite approval of shareholders. No option shall be
granted pursuant to this Plan later than April 17, 2005, but options
granted before such date may extend beyond it in accordance with their
terms and the terms of the Plan.
<PAGE>
EDGAR APPENDIX
The following is the text of the Company's 1997 form of proxy and memo to
employees participating in Company plans:
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY
ONE STATE STREET, P.O. BOX 5024, HARTFORD, CONNECTICUT 06102-5024
ANNUAL MEETING OF STOCKHOLDERS - APRIL 24, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY
The undersigned hereby appoints Joel B. Alvord, Richard G. Dooley, Gordon W.
Kreh and Lois D. Rice, each with the power to appoint his or her substitute, and
hereby authorizes them to represent and to vote, as designated on the reverse
side, all the shares of common stock of the Company held on record by the
undersigned on February 13, 1997 at the Annual Meeting of Stockholders to be
held on April 24, 1997 or any adjournment thereof, upon all matters properly
coming before said Annual Meeting including but not limited to the matters set
forth on the reverse side, hereby revoking any proxy heretofore given.
IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4.
(Important - To be signed and dated on reverse side)
SEE REVERSE SIDE
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY 1866
THIS IS YOUR PROXY. YOUR VOTE IS IMPORTANT
Regardless of whether you plan to attend the Annual Meeting of Stockholders, you
can be sure your shares are represented at the meeting by promptly returning
your proxy in the enclosed envelope.
COMPANY HIGHLIGHTS DURING 1996
Highlights of the Company's 1996 financial results include:
- a 15.3% increase in net earned premium from insurance operations to $448.6
million.
- an 11.9% increase in Engineering Services revenue to $55.8 million
(excluding Radian International LLC)
- a 94.7 combined ratio - far better than the industry average of
approximately 107;
- a decline in the insurance expense ratio to 49.1% from 50.9%; and
- a 14.5% increase in net investment income to $32.3 million.
- 1996 was also the 31st consecutive year that the Company paid increased
dividends to stockholders.
Proposal 2, one of the important proposals stockholders will be asked to
consider and vote on at the Annual Meeting, involves the formation of a holding
company structure as described in more detail in the enclosed Prospectus and
Proxy Statement. For the reasons stated in the accompanying materials, the Board
of Directors believes that the formation of such a holding company structure is
in the best interests of the Company and its stockholders and recommends a vote
"FOR" the formation of the holding company structure.
/X/ Please mark votes as in this example.
The Board of Directors recommends a vote FOR proposals 1, 2, 3 and 4.
1. Election of Directors.
Nominees: William B. Ellis, E. James Ferland and Wilson
Wilde
FOR ALL NOMINEES / /
WITHHELD FROM ALL NOMINEES / /
/ / -----------------------
For all nominees except as noted above
2. Approval of Agreement and Plan of Share Exchange in connection with
formation of revised holding company structure.
/ /FOR
/ /AGAINST
/ /ABSTAIN
3. Approval of proposal to amend the 1995 Stock Option Plan.
/ /FOR
/ /AGAINST
/ /ABSTAIN
4. Appointment of Independent public accountants.
/ /FOR
/ /AGAINST
/ /ABSTAIN
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
MARK HERE IF YOU HAVE MADE COMMENTS / /
Please sign exactly as your name appears. If acting as attorney, executor,
trustee or in other representative capacity, sign name and print title. Please
date proxy and return in the enclosed post-paid return envelope.
Signature: --------------------------- Date:----------
Signature: --------------------------- Date:----------
<PAGE>
To: Employees of The Hartford Steam Boiler Inspection and Insurance Company
From: R. K. Price, Senior Vice President and Corporate Secretary
Date: February 27, 1997
If you are a participant in any of the Company's stock plans (Payroll Investment
Plan, Employee Stock Ownership Plan, Thrift Incentive Plan - HSB Stock Fund, or
the Stock Option and Restricted Stock Plan), you should receive proxy materials
for this year's Annual Meeting to be held on April 24, 1997 through the U.S.
mail shortly.
As has been done for the past several years, these materials were sent via bulk
mail, which saves the Company quite a bit of money in postage, but which also
can result in some delays in delivery. This year, Annual Reports were
distributed via the U.S. mail with the proxy materials, for a number of
administrative reasons, at a minimal increased cost over distribution via
interoffice mail. You may receive additional copies of the materials if you hold
shares registered other than in your name alone. You are encouraged to return
any excess copies of the Annual Report to your department or Branch Office, and
extra copies of the proxy statement and prospectus to Jean Cohn at the Home
Office.
Included with the proxy materials is a card upon which to register your vote in
connection with actions proposed to be taken at the Annual Meeting. The proxy
card lists the number of shares allocated to your account under each of the
plans in which you participate, as well as any shares you hold directly. The
following abbreviations are used to identify your holdings:
COM - Shares held directly or through the Payroll Investment
Plan
RST - Restricted Stock held under the Stock Option and
Restricted Stock Plan
TIP - Shares allocated to your account under the Thrift Incentive Plan if you
participate in the HSB Stock Fund
ESO - Shares allocated to your account under the Employee Stock Ownership Plan
(ESOP)
If you hold shares jointly with another individual or as custodian for a minor's
account, you will receive a separate card for that account.
Whether you own one share or a thousand, it is very important that your shares
be represented at the Annual Meeting. As a shareholder, you have the right and
an obligation to have your vote count at the Annual Meeting. I encourage you to
use this opportunity by completing the proxy card and sending it back to Boston
EquiServe, our proxy tabulator, in the envelope provided.
If you do not receive your materials by March 15, or if you misplace your card,
please contact Jean Cohn, Home Office, Ext. 5724.
<PAGE>
Part II - Information Not Required in Prospectus
Item 20. Indemnification of Officers and Directors
Article 8 of the Holding Company's Articles of Incorporation provides that
to the fullest extent permitted by the Connecticut Business Corporation Act
("CBCA"), no director shall be personally liable to the company or its
shareholders for monetary damages for breach of duty as a director in an
amount that exceeds the compensation received by the director for serving
the company during the year of the violation. This limitation does not
apply to a breach of duty of the director which (i) involves a knowing and
culpable violation by a director; (ii) enables a director or an associate
to receive an improper personal gain; (iii) shows a lack of good faith and
a conscious disregard for the duty of the director to a company under
circumstances in which the director was aware that his conduct or omission
created an unjustifiable risk of serious injury to the company; (iv)
constitutes a sustained and unexcused pattern of inattention that amounted
to an abdication of the director's duty to the company; or (v) creates a
liability for an unlawful distribution under the CBCA.
Article 9 of the Holding Company's Articles of Incorporation provides that
the directors and officers of the company will be indemnified to the full
extent permitted under the CBCA. As of the date hereof, the CBCA permits a
corporation to indemnify its directors and officers against liability
(including judgments, settlements, penalties and fines) if such individual
acted in good faith, reasonably believed that his or her conduct was in the
corporation's best interests and, in the case of criminal proceedings, had
no reasonable cause to believe his or her conduct was unlawful. In a
proceeding by or in the right of the corporation, the corporation may
indemnify a director or officer only for reasonable expenses, and may not
indemnify a director who is adjudged liable to the corporation.
Indemnification is mandatory when an officer or director is successful in
the defense of any proceeding. The CBCA also permits a corporation to pay
or reimburse the reasonable expenses incurred by a director who is a party
to an action, suit or proceeding (whether civil, criminal, administrative
or investigative) in advance of the final disposition of such action, suit
or proceeding provided that (i) such director affirms in writing such
director's good faith belief that the standard of conduct required under
the statute has been met; (ii) such director furnishes a written
undertaking to repay the corporation if it is ultimately determined that
such standard has not been met; and (iii) a determination is made pursuant
to the statute that the facts then known would not preclude indemnification
under the statute. Provision for such advance of expenses in accordance
with the CBCA is included in the Holding Company's Articles of
Incorporation.
The Holding Company (with respect to indemnification liability) and its
directors and officers (in their capacities as such) are insured against
liability for wrongful acts (to the extent defined) under an insurance
policy with limits of $25,000,000.
Item 21. Exhibits. See Exhibit Index attached hereto.
Item 22. Undertakings
The undersigned registrant hereby undertakes:
(1) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities Exchange
Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(2) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of
this form, within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through
the date of responding to the request.
3) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the registration
statement when it became effective.
(4) To remove from registration by means of a post-effective amendment
any shares of HSB Group which are not issued in the exchange.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 20, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Hartford, State of
Connecticut on February x, 1997.
HSB GROUP, INC.
By: /s/ Gordon W. Kreh
Gordon W. Kreh
President, Chief
Executive Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities
indicated, on the dates indicated.
SIGNATURE TITLE
/s/ Gordon W. Kreh President and Chief
Gordon W. Kreh Executive Officer
(Principal Executive
Officer and Director)
/s/ Saul L. Basch Senior Vice President,
Saul L. Basch Treasurer and Chief
Financial Officer
(Principal Financial
and Accounting Officer)
<PAGE>
EXHIBIT INDEX
(2) Agreement and Plan of Share Exchange (attached to
Prospectus and Proxy Statement as Appendix A).
(3)(i) Articles of Incorporation of HSB Group, Inc.
(attached to Prospectus and Proxy Statement as
Appendix B).
(3)(ii) Bylaws of HSB Group, Inc. (attached to Prospectus
and Proxy Statement as Appendix C).
*(5)(i) Opinion of Robert C. Walker, Senior Vice President
and General Counsel
*(8) Opinion of Skadden, Arps, Slate, Meagher & Flom
LLP
*(23)(a) Consent of Robert C. Walker, Senior Vice President
and General Counsel (included in (5)(i))
*(23)(b) Consent of Skadden, Arps, Slate, Meagher & Flom
LLP (included in (5)(ii))
(23)(c) Consent of Coopers & Lybrand L.L.P.
* To be filed by amendment
<PAGE>
EXHIBIT (23)(c)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Proxy Statement constituting part of this Registration Statement on Form S-4 of
our report, which includes an explanatory paragraph regarding a change in the
method of accounting for postemployment benefits during 1993, dated January 23,
1995 filed as part of The Hartford Steam Boiler Inspection and Insurance Company
Annual Report on Form 10-K for the year ended December 31, 1995. We also consent
to the reference to us under the heading "Proposal 2--Proposal to Approve
Restructuring--Experts" in such Prospectus and Proxy Statement.
Coopers & Lybrand L.L.P.
Hartford, Connecticut
February x, 1997
